February 28, 2006

Warranty Software:

Good planning pays off as Ingersoll-Rand converts its first, second, and third business units to a new Web-based warranty claims processing system. Now, as other departments eye all that warranty data, the company looks for better reporting and analysis tools.

Ingersoll-Rand Company Ltd. has been paying warranty claims since at least 1887, when legendary steel-driving man John Henry beat Simon Ingersoll's rock drill in a tunnel-digging contest. Nowadays, its business units are migrating one by one over to a Web-based warranty claims processing system that's notable for how adaptable it's proven itself to be.

Ingersoll-Rand is a huge, global company, one which consistently lands on the list of the top 50 warranty providers. According to statistics gathered by Warranty Week, the company has in the first nine months of 2005 paid out more than $64 million in warranty claims on $7.8 billion in revenue, putting it on par with manufacturers such as Lucent Technologies, Eastman Kodak, and Fleetwood Enterprises.

In the same period the year before, the company paid out $63 million in claims on $6.9 billion in revenue, so as a percentage of sales, warranty's share is shrinking even though it remains steady in terms of dollars. This is a very important metric to Teddy Bekele, who has been managing Ingersoll-Rand's warranty project for the past 2-1/2 years. Essentially, the new warranty system is able to cover more product for about the same money, so as a percentage of sales, warranty costs are actually shrinking.

Bekele told Warranty Week that since the new system has gone in there's been a noticeable reduction in the amount of clerical labor involved in the processing of claims, as well as a reduction in errors. There was also a reduction in the number of claims submitted, which Bekele attributed to the new automatic screening process that stopped invalid claims before they even entered the system (e.g. the machine was out of warranty).

Replacing Paper-Based Claims Processing

In the International Division, which was the first to receive the new claims processing system, there also has been a dramatic decline in warranty costs. Xavier Mourot, the warranty manager at Ingersoll Rand International, said that before the new Web-based warranty system went in, most international dealers used to fax or mail in their claims. The company's warranty clerks would type that data into a computer system, and then others would examine it to see if the claim was valid, complete, and correct. Some used an older Web-based tool, but they couldn't attach anything to the claims and the system didn't allow any real communication between the warranty users and the dealers, Mourot said.

After the new system went in, Mourot said, the dealers entered their own claims data into a Web form, which automatically checked for errors and omissions before the claim was accepted. Nowadays, dealers can attach anything they like to a claim and all internal users can have access to the information from the minute it has been entered in the system.

Second to get the new warranty system was the Bobcat Company, an Ingersoll-Rand business unit that makes loaders, backhoes, excavators, and numerous other types of farm and construction machinery. Richard Gerriets, Bobcat's director of marketing services, said the new Web-based warranty management solution was partially replacing a computer-based dealer management system that had been in use since 1994. "We weren't fixing anything that was broken," he said. "We were just raising the bar."

As a company, Ingersoll-Rand has five sectors: Compact Vehicle Technologies, Climate Control Technologies, Construction Technologies, Industrial Technologies, and Security & Safety Technologies. Climate Control and Compact Vehicle Technologies together account for more than half of both total revenue and operating income. Then there's one international division, called Ingersoll-Rand International, which is headquartered in Dublin, Ireland. Non-U.S. sales account for roughly 39% of the company's total revenue.

Each of the five sectors, in turn, has its own distinct product lines and business units. The Bobcat machinery and the Club Car golf carts fit within the Compact Vehicle Technologies sector. The refrigerated trucks, walk-in freezers, and the Thermo King and Hussmann brands are part of Climate Control Technologies. Construction Technologies has the Montabert brand of jack hammers plus a line of road paving and mobile electricity generating equipment. Industrial Solutions makes air compressors, microturbines, and industrial tools, and includes business units known as Air Solutions, Productivity Solutions and Energy Systems. Security and Safety makes locks, doors, door closers, exit devices, and electronic and biometric access control systems.

Each business unit manages their own operations independently, including warranty. Up until three years ago, each business unit also ran their own international operations. But then the Ingersoll-Rand International headquarters was opened in Dublin. Ever since, all non-U.S. business has been run out of that single office with a single set of applications.

Originally, the plan called for the International Division to evaluate all the different applications used around the company and choose as their own what they thought was the best in its class. For instance, Oracle was chosen for all the financial applications and also for the enterprise resource planning system. But when it came to warranty, Bekele said, nothing then in use within the company stood out as particularly best in class. Some business units, in fact, were still using paper-based warranty claims processing systems.

"There was really nothing at that time they could pick off the shelf," he said. "I mean, there were small packages here and there, but it looked like even if we picked a package off the shelf, we would have to modify and customize it to fit the needs of the company, especially when you're looking at all the different business units."

At that point, Ingersoll-Rand made two strategic decisions. First, they decided that the new International Division would get a new warranty system. Second, they decided that whatever was ultimately selected for that division would eventually also be used in all the other business units around the world.

Introducing Tavant Technologies

Two years ago, in February 2004, all the warranty people from all of Ingersoll-Rand's business units were invited to Dublin, where over the course of nearly a month of meetings the requirements of the new warranty system were worked out. Then the warranty project team brought those functional specs to Tavant Technologies Inc., which had already been doing custom applications development work for Ingersoll-Rand International for several years at that point in the areas of order entry and equipment financing (Tavant is a Warranty Week sponsor).

Ingersoll-Rand International was Tavant's first business relationship, so by the time it was asked to develop a warranty claims processing system, Tavant was already well-acquainted with Ingersoll-Rand's way of doing business. And now, looking back, because Ingersoll-Rand International was itself made up of a little bit of many business units, it was perhaps the best place to start the implementation of a system that would eventually spread to all corners of the corporation.

Tavant was also doing a lot of custom development at the Bobcat headquarters up in North Dakota, so that business unit was chosen to be second after Dublin to receive the new warranty system. With oversight from Ingersoll-Rand, the Tavant programmers began to design and develop the application, then test it. But because the international work took a bit longer, the implementation was actually finished first at Bobcat. The new warranty system went live at Bobcat on May 2, 2005, and then in late May within the International Division.

"We deployed the application," Bekele said, "and of course we had a bumpy road for the first month -- serial numbers not being found, fault codes not being there, and unreliable Internet connections. But then the application stabilized."

By October 2005, he said things had calmed down enough for the project team to run some reports and make some comparisons to a year ago. They compared three months from 2005 to the same three months in 2004, and found that the International Division had cut its warranty costs in half. The primary reason was the efficiencies gained by going from a collection of mostly paper-based systems for all the international pieces of the business units to a single central computer system for the International Division as a whole.

Third Unit Goes Live on Tavant Tuesday

According to Terry Adams, director of technical support and service development within the Industrial Technologies sector of Ingersoll-Rand, the new warranty system was launched last week at the Air Solutions unit in the U.S. and Australia. "We called it Tavant Tuesday," he said. Over the next few months, it will be rolled out to the rest of the Industrial Technologies business units in Latin America and the Asia/Pacific region.

"Ours is based on exactly same system [as Bobcat] with some minor tweaks to suit our product type," he said. "Our existing warranty system was a cobbled-together affair of 1990s-type Access databases with more links out and in than you can imagine. It could be unreliable. And it was difficult to get reports out of it."

"We benefited a lot from what was learned from the Bobcat implementation," Adams said. Work on the Air Solutions implementation began in July 2005, and seven months later it was completed. "We've had a few teething problems, mostly based on the data cutover. As we've extracted data from the legacy systems, some of it wasn't clean. We knew it wouldn't be. But everything going forward is clean from day one."

In Dublin, Xavier Mourot said he thinks that one of the key reasons the new warranty system went in so fast was the newness of the division itself. There were no entrenched and longstanding ways of doing things, and the new staff was open to doing things in new ways.

"We started with a new system and new people, therefore we were not used to a routine," he said. Having joined the company in 2002, he was one of the few people on the staff who remembered how the old legacy systems worked when the international operations were run out of an office in Brussels, before the move to Ireland. Most of the others had no idea. "Therefore, all the resistance to change didn't exist," he added.

Blame the Computer

Among the dealers, there was some grumbling about the loss of their ability to push through borderline claims, but that loss of discretionary powers could safely be blamed on "the new system" and its validity-checking rules, rather than on the people running it. Plus, the dealers benefited from a reduction in the lag time between when a claim was submitted and when they were paid. Under the old system it took 28 to 30 days for them to get paid. With the new system, it takes only two to three days.

"The main benefit is that we have a clear visibility of what we have in the system," he said. "Anybody from the company has access to the warranty system. So if someone wants to see what kind of claims we get today from the dealers, there's no problem. We have people in the factory who check the system on a daily basis. They see straightaway, as soon as the dealer enters the claim into the system, a description of the failure. So it's easy for them -- let's say, an engineer in charge of the hydraulic system for a particular machine -- to check every day and see what failures the dealers have reported online."

For the International Division in particular, Mourot added, the new system also has made it easier to look at failure trends across borders and between languages. Now, all the failures are coded, so people don't always need to read and understand the description to know what happened. "We try to have as many codes as possible," he said, "so the dealer is working in French, Italian, or Spanish, but all the information can be easily converted to English. It's only the comments in the claim that are not translated. For the U.S. factory, that's a great improvement."

The World-Wide Wait

Gerriets said that for Bobcat, the biggest transition was involved in adjusting user expectations regarding throughput. "For us," he said, "I think the learning was in the area of Web-based versus mainframe processing speed, and understanding bandwidth requirements and such. We did quite a bit of adjusting in the first month in order to understand and work with a Web-based solution. I guess as a group we underestimated the impact of going to a Web-based solution from a mainframe."

For instance, on the mainframe warranty analysts were accustomed to working on one claim at a time. But because the Web-based system took a bit of time to update and refresh screens, on the Web they learned to work on two claims at a time, looking at one while the other refreshed in the background. "It's an efficiency issue," Gerriets said.

Still, it's vastly superior to what was being used by previous generations. From 1958 until 1994, Bobcat processed all its warranty claims on paper. Then in 1994, the warranty department took its first steps towards computerization with the installation of a dealer management system made by PFW Systems Corp. Then Tavant came on the scene in 2001, working on an order entry system for Bobcat. Tavant also did some work on an interim mainframe-based warranty system that was used from 2001 until 2005, when the new Web-based system was turned on.

Gerriets said the fact that Tavant helped develop the new system after helping to put together the interim system helped speed along the project. "They had to be intimately familiar with how we do what we do with our data, and so forth," he said. "I don't know how we could have done what we managed to do without them being very familiar with it."

Still, it wasn't all that radical a change from the point of view of the dealerships. "From a transition standpoint, I think we kept it pretty seamless," Gerriets said, "with the exception of the expanded coding. There wasn't a lot different there. In fact, many of the attributes of the system are good for the dealers in terms of populating a claim for them."

Warranty Goodwill

To submit a warranty claim using Web forms, dealers are first asked for the serial number of the machine, the number of hours on it, the date of failure, and the date of repair. That in turn finds the records for that unit and populates a second Web form where they can type in the details of the warranty claim. After that form is submitted, it's checked for completeness and validity, and if it passes, the dealer gets a claim number.

In the case of warranty concessions, from then on it would be up to the district service manager to decide if an out-of-warranty machine should be fixed under warranty as a goodwill gesture. In cases where warranties are lengthened by a salesman in order to close a deal, Bekele said all the warranty department needs to record the change is the machine's serial number. "It takes about a minute," he said.

Bekele also said Bobcat automated some of the parts return procedures, so that a dealer would know at the time a warranty claim was submitted whether the parts should be sent in. If the parts are in fact needed, the system allows the dealer to print the mailing label that's needed to route the shipment to the right destination.

In the past, Bobcat clerks used to decide if they needed to see the parts, and if they did, the clerks would print the mailing label and send it to the dealer, hoping that the dealer had put the parts aside. That used to complicate failure analysis, Bekele said, because sometimes if the claims department was backed up the dealers wouldn't get the request to ship parts back for 90 days. By then, they might have disposed of the old parts. However, they still wanted to get paid, so they'd send back the same parts taken off another machine.

The system also reduces the incidence of dealers putting through invalid claims, Bekele said. Most machines have a one-year warranty on the complete machine; an 18-month warranty on the drivetrain; and two years on the compressor. Before, during the nineteenth or twentieth month a dealer might allow a warranty claim against the drivetrain to slip through as a compressor repair. Now, the system would process three warranties of different lengths for the single machine, and so there would be no fault codes for the drivetrain under the compressor's warranty. And even if the dealer picked a fault code that was there, the list of replaced parts wouldn't match, and the system's rules would kick out the anomaly.

Product recalls have also been simplified by the new system. "We have this thing called a Field Modification Campaign," Bekele explained. Engineering identifies the recall and the serial numbers of the affected machines. It also specifies what work needs to be done on each machine. "Once all those are uploaded," he said "the system populates all the dealer's inboxes based on who has retailed the machine. So in their inboxes they have an Outstanding Field Modification -- any serial number they're responsible for is there along with the appropriate documentation. They can open that up and see what needs to happen, and then they can file the claim. In fact, the claim is pre-populated for them. All they have to tell us is when they did the work, who did it, and any comments they want to fill in."

Chairman's Award Goes to Warranty Dept.

Every October, Ingersoll-Rand's leadership committee gets together to evaluate candidates for the Chairman's Award. Awards are given to groups within the company for 1) dramatic growth, 2) operational excellence, or 3) dual citizenship (increased cooperation between business units). In 2005 the warranty project was submitted for consideration on the strength of its involvement of so many people from different business units and countries.

Every November, the committee announces the award winners. The warranty team won, but not only for getting people from Belgium, Dublin, North Dakota and India to work together, but also for cutting warranty costs and increasing operational efficiency. So that's two out of three.

One big reason for the citation for "dual citizenship" has been the way all the stakeholders have been involved in the planning process from the earliest stages. It started with that month-long planning meeting in Dublin two years ago. But it continues even today, as some of those participants bring the new warranty system into their business units. And its popularity is beginning to spread outside the warranty departments as well.

"We formed a global warranty council last year," Adams noted. They met face-to-face in April 2005 and started having conference calls every two weeks after that. In October, they met again to show the nearly-finished system to all the stakeholders, and to bring in additional people from engineering and purchasing who would eventually be using the warranty data to support their work.

Adams said the discussions that took place within that council were instrumental in having a supplier recovery module added into the warranty system. A supplier recovery module is part of the Industrial Technologies system that went live last week, but it was not part of the warranty system initially installed at Bobcat or the International Division. However, now it will be added into those systems during the next update, and it will be part of the system installed at other business units going forward.

"We don't actually want any supplier recovery because we prefer not to have any warranty claims," Adams said. "But where we have issues with suppliers, we want them to know about them and to use that knowledge as a method to help them drive their processes."

SAS Partnership for Warranty Analysis

Bekele said Ingersoll-Rand is very interested to hear more about how Tavant plans to partner with SAS Institute to bring better data analysis tools into the mix. Adams said the company is also interested in hearing about how the reporting capabilities of the system can be improved. "We're now going to be able to directly enable our engineering teams, our sourcing teams, and our manufacturing and quality teams to independently go into the system," he said. "That's our next phase. We're going to train them to go in and look at the data themselves, rather than having to ask the warranty teams for reports. Our engineering team could be in a meeting, deciding a new design for a machine, and they could log in there and then and run the data on solenoid valve failures or hose failures, for example. And as a team in real time they can make a decision."

Ron Ezsak, Tavant's global warranty practice lead, said the company had always planned for its warranty software to do much more than just pay claims for one customer. He said a supplier recovery module was always anticipated as an enhancement, as were links to the engineering, quality, production, and finance departments. While the warranty management system Tavant created for Ingersoll-Rand was essentially a custom effort, the architecture of the software was designed so it could be later adapted to fit the needs of multiple companies.

"We created a different kind of warranty system," Ezsak said. "We try to turn it from claims processing into problem resolution. We looked at the core business processes that a comprehensive warranty capability requires. And we've templated them. So for virtually any organization that has a warranty process revision in mind, what Tavant offers is essentially 60% to 80% of the core business processes templated." It's up to the customer to decide which modules they want to turn on now, and which they want to add later.

Ezsak added that Tavant is already partnered with SAS Institute for warranty analytics, and also for SAS services. "So not only can we employ the SAS analytics in our solutions footprint, but we also will be able to bring to our clients SAS-trained service professionals." He said more details about this partnership will be announced this week at the Warranty Chain Management Conference in Las Vegas.

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