February 28, 2007

Warranty Conference, Day One:

Whether by design or by coincidence, this year's Warranty Chain Management Conference seems to have two major themes: the globalization of warranty management and the legal aspects of warranty and extended warranty. At times, attendees will have to choose between two or even three equally good choices when deciding which track to follow.

On opening day at the Warranty Chain Management Conference, the globalization theme will be set early by the keynote presentation of Solectron's Steve Manning (see Warranty Week, Feb. 14, 2007 for more). And then a legal theme gets going in earnest after lunch with speakers addressing topics such as warranty fraud and regulatory compliance.

Except for the opening hours of the morning on both Wednesday and Thursday, and the closing hour on Thursday, WCM attendees will need to make some choices about which of several tracks they'd like to follow. It would be so easy to make choices if the competing tracks were labeled "globalization" and "legal," but of course nothing in warranty is ever easy.

So what we'd like to do in this newsletter and next week is report the answers of each presenter to a few key questions about their presentation: what they'll say, what major points they want to make, and what they hope people in the audience will take away from their presentations. This week, we'll cover Wednesday, March 14, and next week we'll cover Thursday, March 15.

What Does the CEO Know About Warranty?

After Manning's keynote presentation on the morning of the 14th, Warranty Week editor Eric Arnum is scheduled to provide an update of all the key warranty metrics that will be instantly familiar to steady readers of this newsletter. He is to be followed by Joe Barkai, the program manager of Manufacturing Insights, who said he also plans to use this first of his two speaking slots to update the audience on themes he touched upon at last year's WCM Conference in Las Vegas.

"It's an update and a refresh of the research we did last year: asking warranty managers and practitioners as well as IT folks how much they know about warranty, how important warranty management is as a process and a practice, and awareness of their warranty exposure," Barkai said.

His survey questions, which are online at, probe the relationship between the level of awareness of warranty, and the level of investment in warranty management tools. In parallel with that online effort, he's also running phone surveys with warranty managers and warranty tool vendors, and he's going back to his warranty advisory panel.

And he's asking all of them the same core questions: Is the level of awareness the same across functional areas, namely quality, engineering, operations, finance, and IT? And what is the corresponding level of IT investment in warranty tools?

Last year, Barkai said, the research found that warranty awareness decreases the further one gets from the quality and warranty functions. And there was also a poor correlation between awareness and investment in IT tools. He suspects not much has changed. But the results are still coming in.

"I can assess that the level of awareness has increased but the level of IT investment has not," he said, based on his discussions with warranty tool vendors. Sales of computer-based warranty tools are still very heavily driven by technology, and sales cycles are still very long. "You still need to find the poor guy who has enough pain and enough money, and these usually don't go together. Most of the buyers really do not have budgets."

Barkai said he thinks that the press and the analyst community have also become more aware of warranty over the past year, and even advertising has driven home the link between longer warranties, higher quality, and better products. But at the same time, Barkai said he hasn't seen the same level of urgency in the manufacturers' IT departments, and he's not sure why. "I'll propose several different scenarios why," he added.

"They certainly seem to understand the value of warranty as a way to incentivize buyers," Barkai said. Yet they also seem to understand that longer warranties can cost more if processes and practices remain the same. "So if they know the importance of warranty on the one hand, and they know the cost on the other hand, there's a very puzzling gap between the two statements."

Globalization Panel in the Morning

After a coffee break sponsored by Crawford & Company, attendees need to choose whether they're going to sit in on a globalization panel chaired by Kevin Coogan, warranty cost/supplier quality manager at Scotsman Ice Systems, or a warranty software vendor/customer panel chaired by Scott McEwen, vice president of Snap-on Business Solutions. We have no advice; basically, they both look good, and they both promise some valuable end user stories.

Coogan's panel will kick off with a presentation by Cliff Wagner, director of Hewlett-Packard's PSG commercial support and warranty, who plans to talk about how his company is cutting its warranty costs while continuing to use warranty to drive sales and improve customer loyalty. Others have compared HP's warranty cost reduction efforts to the process of trying to turn an aircraft carrier, but the truth is that the company has consistently reduced the percentage of product sales it pays out in warranty claims over the past several years. So the ship is turning, if ever so slowly.

Wagner is to be followed by another computer warranty expert in the form of William Eliason, financial analyst in the Global Warranty Finance section of Sun Microsystems Inc. "In keeping with the globalization theme, I wanted to talk about how at Sun it's definitely added complexity to our warranty process," he said. "There are cultural differences and economic differences. You have the exchange rates. You have how your case management system works in other countries, and how it's interpreted and implemented. That definitely adds a lot of complexity to our global warranty tracking."

Eliason said he also wants to go into some detail about Sun's 2005 acquisition of Storage Technology, and the differences that had to be resolved before they could truly say they were counting warranty the same way. "We had two different mindsets. Their business is a lot different than ours, and the way they track their warranties was in some cases literally 180 degrees from our philosophy," he said.

For instance, in Sun's servers, disk drives are typically replaced when they fail and not much effort is expended on attempting a repair. In many instances, Sun would mail a new part to the customer and the customer would return the broken part in the same box. But at StorageTek, they're very proud to have kept some expensive tape drives running for 20 years or more through constant maintenance and repairs. "So they won't throw them away," he said.

Many of StorageTek's standard warranties were what Sun would have called premium or "elite" warranties, Eliason said. "They were well beyond break/fix," he said. "They had a higher mindset, that their products were very elaborate, so they had to get a technician out there." Most of the accounting was the same, but the service level was quite different. And therefore it was difficult to compare the costs.

Next, Coogan plans to speak about his own company, benchmarking Scotsman Ice against others in the food handling equipment industry. "Basically, I am going to utilize the Aberdeen study," he said, referring to an Aberdeen Group report entitled "Winning with Integrated Warranty Management," which was published by the research house last June. "Our company, Scotsman Ice, was named in the study as a best practice company. And I'm going to explain in detail what our practices and disciplines are."

Coogan said he plans to compare claims and accrual rates for his company -- which is owned by a British-based company and is therefore not required to file its financials with the SEC -- to industry averages.

"I'm not going to go into detail on both of them. I'm going to throw them out there as some of the outputs of our process. But since there's so little that is known or publicly available on warranty management, I use anything I can find to see how we line up against publicly-traded companies."

In the past few years, he said, the trend for Scotsman Ice has been in the right direction, which pleases his management immensely. Coogan said he thinks the key reason for this success has been the company's recurring focus upon warranty as a major discipline.

"I'm not giving away any trade secrets," he said of his presentation. The numbers aren't the process, so releasing the numbers doesn't give away all the steps in the process. "Saying and duplicating it are two different things," he said.

Plus, Coogan said the advantages of having a public discourse outweigh the disadvantages of the loss of privacy. He said he spoke at the first WCM conference in San Francisco, and found it to be very beneficial to also be able to hear what others were doing at their companies. So in a way, speaking about his company is simply part of the price of admission. "I'm glad to contribute and I'm glad to be part of this movement."

The final speaker for this panel is Paul Garand, an engineering manager at Magna Closures Inc. Part of the worldwide Magna International conglomeration of automotive suppliers, Magna Closures manufactures components such as car doors, windows, brake, clutch, and gas pedals. As the automotive manufacturer of the bunch, the task will fall to Garand to explain the TREAD Act and how an auto supplier also needs to think about compliance with that law.

It could mark the beginnings of the transition from the global to the legal theme, but instead Garand is going to focus on the benefits of compliance from a different direction. Basically, one could implement a TREAD Act compliance system that does exactly what the law requires, and nothing else. Or, a company could implement a system that thoroughly analyzes warranty and safety data, looking for patterns and anomalies that might otherwise go unnoticed, and oh by the way also produces the quarterly spreadsheets the government requires auto suppliers to file online. Obviously, Garand is going to suggest that Magna has done the latter.

Software Vendors and Their Customers

The other morning panel will feature six speakers -- three warranty software vendors and three end users from the heavy equipment industry. But it won't be exactly a one-to-one ratio between vendors and customers. Scott McEwen, VP of Snap-on Business Solutions (formerly ProQuest Business Solutions), will bring along Jeff Winner, the national service and warranty manager at Komatsu Forklift USA Inc.

Ken Emory, the director of warranty wise solutions at 4CS, plans to bring along both Jeff Stewart from Takeuchi and Kevin Krakora from Mitsubishi Caterpillar Forklift America Inc. But then Jonathan Mitten, a technical architect at Entigo Corp., plans to go solo. However, he'll talk in depth about how Entigo's warranty software is in use at Allison Transmission, among others.

Then it's time for lunch, after which attendees must once again choose between two worthy panel discussions. On the other side of the lunchroom wall, Greg Spraker of SAS Institute will lead a probe into warranty estimates and warranty fraud, which evidently are separate topics. Down the hall and around the corner, Paul Swenson of Fulcrum Analytics will lead a probe into extended warranties that will also take a detour into some of the legal aspects of motor home warranties.

Warranty Fraud Panel

Let's start with the estimates/fraud panel. It begins with Stacy Ingram, a securities attorney and partner in the law firm of McKenna Long & Aldridge LLP, who will be discussing the Sarbanes-Oxley Act of 2002 and the far-reaching effects it has and will continue to have upon disclosures of warranty information.

"All of the rulemaking and regulation that came out of Sarbanes-Oxley impacts how a company deals with all of their day-to-day financial recording, reporting, and disclosure," she told Warranty Week. "As far as warranty liability, the rulemaking that came out of Sarbanes, and the related SEC requirements and PCAOB [Public Company Accounting Oversight Board] requirements, are going to impact how you record your warranty liability, how you estimate your warranty liability, and how you disclose your warranty liability."

Ingram said that what the Act has done is to mandate an enhanced layer of internal controls upon public companies, so that nothing goes into their financial statements that hasn't been touched by it. Of course that includes warranty, but it's hardly restricted to the warranty process alone. Yet, since 2002 there has been an unprecedented enhancement in the amount of warranty information available from U.S.-based public companies.

Still, Ingram sees room for improvement. For instance, she said some of her clients have already received comment letters from the SEC asking for more details about the process they use to make estimates of amounts such as warranty accruals. Right now, many insert some variation of the simple "we periodically make estimates and correct them if they're wrong" boilerplate statement into their financial reports. But now the SEC wants to know how.

"And when you get that comment [letter] you have no choice," Ingram said, "because they force you to expand your disclosure. But one of the problems is the distinction between what the SEC would like to see and what is practical from a business perspective. No one is going to take the pages that it would take to actually explain how they get to most of their critical accounting estimates in a fashion that the average reader can understand."

The trick will be to find a balance between what the government wants and what businesses are willing to reveal about their internal decision-making processes, she said. Most of it would seem very elaborate and uninteresting to the average investor, but some of it would surely give away previously confidential information to competitors.

Meanwhile, Ingram said, there's a sort of counter-trend under way where companies are beginning to complain rather vocally that some of the requirements of Sarbanes-Oxley in general are too detailed and too expensive to follow. For instance, she said, the PCAOB and the SEC have each issued new guidance documents this year regarding internal controls reviews. "We don't really know what the impact of that is going to be yet," she said, "but there may be a change."

Spraker plans to follow Ingram with a more in-depth discussion of how warranty providers can use analytics to make more accurate estimates of future warranty expenses, adjusting accruals and therefore their warranty reserve balance so that it's neither too large nor too small, but just right. Steady readers of Warranty Week will remember that it was Spraker who has twice contributed columns about different aspects of warranty financial management, first on September 12 in an article that laid out some suggestions for what should be counted as a warranty expense, and then on January 23 in an article that talked about the concept of rightsizing the warranty reserve. This presentation will be a continuation of those themes.

Then the topic switches to warranty fraud, and how warranty providers can reduce it. Audrey Finot and Angela Narvaez of Hewlett-Packard plan to give a joint presentation about some internal tools their company has developed to combat warranty abuse. Finot said first she'll talk about the tools themselves, and then Narvaez will talk about the actual use of the tools. "I'm more about the tools, and she's more about the process," she said.

Finot said she thinks their presentation will appeal to people across all industries that provide warranties, and not just to high-tech or computer manufacturers. "It really is more about a process," she said. "It's not necessarily about tracking specific people or parts that are relevant only in the computer industry. It is really more about the process of putting a tool in place and how that helps you manage your business better."

Their joint presentation is entitled "Using IT Tools to Facilitate Focused Investigation of Warranty Abuse," and that's exactly what Finot proposes to show: how these tools help HP comb through the data and decide where to send investigators or whom to audit. Call it computer-assisted investigations, if you will. "The tool alone is no good," she said. "And the process without the tool is not as efficient as when you have the tool to help you manage and mine that data. The combination of the tool plus the process are what made this an exciting project."

The HP presentation is to be followed by a warranty fraud presentation from Bill Roberts, a supply chain solutions manager at SAS Institute. While HP is to discuss its internally-developed and therefore proprietary fraud-fighting tools, SAS will discuss how its for-sale software can help a company root out warranty fraud.

However, rather than simply tout the analytical capabilities of SAS tools, Roberts said he will show how techniques originally developed for use in other industries are now making their way into warranty-oriented anti-fraud applications. "I'll be focusing on a case study of how to analytically detect fraud from claims data," he said, which he suggests can reduce claims paid by as much as 10%.

Roberts said SAS Institute actually worked with a client late last year on this very project, which grew out of earlier engagements where clients used SAS analytic tools to detect other types of fraud in other lines of business. For instance, there's plenty of alleged fraud in the credit card industry, as well as in the medical insurance industry. And at least in the latter case, the fraud usually arises in the form of claims for services that never occurred, or did not occur in the way described. Roberts said some fraud attempts exaggerate the amount of work done, while others try to overcharge for the work that was actually done. And some completely invent customers or procedures that never existed or never happened.

"It's almost like a business process commonality," he said, "at a transaction level." The comparison isn't as clean with credit card fraud, but from that industry SAS has borrowed the practice of looking at all the available information about a given transaction and assigning it a score that predicts the likelihood that it will turn out to be fraudulent. "So we can put processes in place on the front end that stop you from paying what looks like fraud, and we can do the same for manufacturers." If it's not fraud, the claim can still be paid. But if it does turn out to be fraud, at least the manufacturer hasn't yet sent out a check.

Roberts noted that many manufacturers already routinely use a set of business rules to determine whether a given claim should be paid. For instance, does the claim include a valid serial number? Is the unit in question still within its warranty period? Are the costs of the repair in line with expectations? Now, he's saying, a company can overlay a set of analytical rules on top of that to basically sniff a claim and tell the manufacturer if it smells fishy.

"You can also do that same type of analysis on your paid claims database," Roberts said, "so without changing processes and doing so on the front end, you can apply all of these techniques to claims you already have in. So if you're going to audit people, you will be auditing very specific people in very specific areas."

Besides the obvious benefits of reducing fraud, Roberts said he also will note that such a process will result in better early warning data. "Fraud throws up a lot of smokescreens in your data," he said, "making early warning more of a challenge and making root cause more of a challenge. So then, if you're essentially putting some quality controls into the data coming in, we're better able to achieve reductions in warranty cost."

Extended Warranty Panel

Meanwhile, Paul Swenson's panel is going to have the luxury of presenting only four speakers over the course of two hours, because two of the originally scheduled participants have now withdrawn. Attorneys Jonathan Friedman and Chris Baugher have dropped out of the panel after Baugher was recently called away to Europe on business. However, Friedman will still make an appearance at WCM on Thursday afternoon to talk about warranty and the rules of evidence, which we'll detail in next week's issue.

That leaves us with Swenson, who will bring along Scott Morrison of Fulcrum Analytics for a discussion of how manufacturers and retailers can better manage their extended warranty programs, to be followed by two other speakers.

Rachel Cater, the manager of the Extended Services Department at Goodman Global Inc., said she will be discussing extended warranties from a manufacturer's point of view. "I'll talk about it in general and then bring in some details about Goodman's presentation at the end," she said.

"Part of what I get out of the conference is all the different viewpoints," Cater said. "And I felt like based on what I had heard in the past with regard to extended warranties, I had a bit of a different perspective. And I wanted to share that."

Goodman Manufacturing Company, which until last year was a family-owned private company, is actually now the second-largest U.S.-based HVAC manufacturer, behind United Technologies' Carrier unit. It's also now a public company following a 2006 initial public offering of stock, and so now it's following all of the same warranty reporting requirements detailed earlier in the day by Stacy Ingram. In fact, on the day Cater spoke to Warranty Week, she was working on all the regulatory filings that are now part of her job responsibilities. "It can be a challenge," she said.

Goodman's products are sold and installed by a network of distribution centers, some of which are company-owned and some of which are independently-owned. As regarding knowing who its ultimate customers are, Cater said Goodman is now struggling with some of the same challenges experienced by manufacturers who go through retailers. Sales of extended service plans for which Goodman is the obligor is a splendid way to make that happen.

"We can offer the contract to the end user at a tremendous price," she said, by cutting out the middlemen and their markups. "We think it's a win-win for both us and for the consumer." She said Goodman looked at outsourcing the whole operation to a third party, but concluded it was better to keep it in-house. Most of its competitors have come to the opposite conclusion, preferring to work with third party administrators or insurance companies.

And then, in another mid-panel topic transition, the subject will change from extended warranties to legal aspects of product warranties. Paul Wojcicki, a partner in the law firm of Segal McCambridge Singer & Mahoney Ltd., said he is going to concentrate his presentation on a clash he sees between OEMs and suppliers when it comes to taking responsibility for warranty claims.

"One of the things that launched me into this was the whole motor home situation," he told Warranty Week. When a consumer buys a house or a passenger car, normally the company with its nameplate on the back of the vehicle is responsible for the overall warranty (the so-called bumper-to-bumper warranty). But when one buys a recreational vehicle, different parties may be responsible for the warranties of different components, and some of those warranties may conflict or overlap.

Also, in some states, the implied warranties granted by statute may conflict with the terms of the express warranties granted by the manufacturer(s). For instance, in New York there's a Lemon Law that makes the nameplate ultimately responsible for the entire vehicle -- not only for passenger cars but also for RVs. So if there are problems with the RV's chassis, the company who bought the chassis and assembled the complete vehicle may end up liable for the entire vehicle, as if it were a passenger car.

"Everybody's pointing fingers at everybody else," Wojcicki said. "The chassis, engine, transmission, and the nameplate warrantors are pointing at each other." He said he thinks that component part manufacturers and OEMs need to sit down and look at their agreements, so they can come up with an efficient manner to deal with these kinds of problems. Otherwise, the courts will have to sort it out through lawsuits brought by consumers.

Wojcicki said it would be better if the parties agreed ahead of time to share data, expert witnesses, and other items that would help avoid some of the finger pointing. "Let's get this hashed out at the beginning, so that at the end of the day, if you can't do it by agreement, then you go through some kind of arbitration or mediation," he said. But it need not become a lawsuit. And warranty need not be a battleground.

Thanks to some recent case law, Wojcicki said that he also sees an opportunity for final end assemblers of motor homes to limit the scope of any implied warranties to the same terms and conditions as their express written warranties, thus limiting their liabilities. "I try to avoid the term manufacturer, because there are implications that go with that," he said. A manufacturer designs the complete product, and can therefore take responsibility for all its components. That's not always the case with motor homes, where a consumer may choose a microwave oven that the assembler merely installs but does not design.

"Forewarned is forearmed," Wojcicki said. He said the best course of action is for companies to recognize their exposure and to develop a plan that manages the roles of dealers, OEMs, and suppliers.

Three Late Afternoon Panel Discussions

Starting at 4pm, WCM attendees will have their choice of not two but three different panels. Kjell Hammarstrom of Sun Microsystems leads a panel on warranty cost reduction, while Glen Griffiths of HP chairs a panel on warranty services, and the Garden City Group conducts a hypothetical product recall scenario. Let's discuss them in order.

Hammarstrom, the warranty cost program manager for Sun, is going to continue the globalization theme touched upon by his colleague William Eliason and others. In a discussion with Warranty Week, Hammarstrom noted that his company already does business in a hundred countries using almost as many currencies. "And we need to put dollar signs on our early warning reports," he said, because back at headquarters the reports seem to get more attention when they include both units and dollar costs, not to mention when they spotlight an opportunity to save money. So he translates as much as he can as soon as he can, using estimates when necessary.

Hammarstrom has the global responsibility within Sun to track warranty costs and compile them into early warning reports. However, he said he frequently can't wait until all the paperwork arrives from all of the far-flung repair and logistics vendors, because then it wouldn't be an "early" warning. Therefore, as he will explain during his presentation, sometimes he has to estimate certain cost figures the next day and quickly translate them into dollars. Then he needs to compare the actuals to the estimates once the paperwork catches up.

"I need to follow up on things like freight costs," he said. It's easier when a preferred vendor such as DHL or Celestica is used, because they'll always bill in dollars, no matter where the service was performed. But in some areas of the world, other vendors must be used. Either way, though, freight and warehousing costs are constantly changing, not only because of currency fluctuations but also because of the volatile cost of fuel. "It's important not to stick with these numbers too long," he said. "You need to review them on a constant basis. Otherwise you can get very misleading figures."

Hammarstrom, who's based in Sweden, said he thinks it's a happy coincidence that one of the themes of this year's WCM Conference is the globalization of warranty processes. That's a topic that he's lived with on a daily basis for many years. "I did not create my presentation after the theme, though," he said. "I actually created it because it was something close to my heart."

Hammarstrom is to be joined by Paul Bittorf, the services program manager at the Computing Technology Industry Association, and James Glueck, the vice president of technical services at Cisco Systems.

Glueck is going to detail Cisco's Achieve Commit through Excellence (ACE) effort, which looks all through the service supply chain for opportunities to reduce costs. At WCM, he will outline how Cisco's managers are held accountable for their warranty cost reduction targets, and he will make some suggestions for best practices that attendees can take back to their own companies.

The Computing Technology Industry Association, or CompTIA for short, calls itself the voice of the world's information technology industry. Bittorf plans to focus his presentation on a phenomenon that plagues IT manufacturers as thoroughly as it does automotive manufacturers: no fault found, which is what happens when perfectly good parts are replaced.

Back in 2004, CompTIA began an effort to reduce NFF, which its members say is a large and wasted portion of their warranty budgets. That same year, it published a white paper on the subject of electronic warranty claims standards. The two efforts don't share much besides a common parentage, but they show how CompTIA has for years been doing warranty work on behalf of its members.

Aftermarket Services Panel

In Glen Griffith's panel, two speakers will discuss warranty services. Tom DePew, senior transformation executive at EDS, said his company is now ready to uncloak itself a little bit and explain what it already offers in terms of warranty services such as Eclaim. So it's no coincidence that one of the themes of his WCM presentation will be the role of aftermarket services and their relationship to both product warranties and service contracts.

"EDS is a company with an enterprise point of view," he told Warranty Week. "We deal with large, enterprise-wide issues. So when we started looking at the aftermarket, it became pretty clear that we'd be dealing with a lot of procurement people. And what we saw was that departments would go out and issue RFPs to procure certain solutions. But nobody actually goes out and engages at a business process level.

"So what we're doing is going out and engaging at that business process level," DePew added. "And when we do that, what we're seeing is that the integration between the various service offerings that are necessary to support an aftermarket delivers additional value in and of themselves -- value that is left on the table if one engages in point procurements."

In other words, it makes less sense to go out and separately contract for a contact center, a reverse logistics partner, and an electronic claims submission capability than it does to look for a bundled solution of all three. And it makes even less sense to do this one way for product warranties and another way for service contracts.

Already, EDS clients such as IBM, Lenovo, and Toshiba have signed up for the Eclaim service, a Web-based warranty and product failure management system. But those companies haven't talked much about it, and neither has EDS. So don't be surprised if DePew makes some headlines for simply saying what EDS already does in terms of warranty services for high-tech manufacturers.

"For example, with a lot of our corporate customers today, we offer what amounts to extended service contracts," DePew said. The customer calls an EDS-operated contact center, an agent arranges for the collection of the broken unit, and then EDS arranges for the repair or replacement of the unit. "For the marketing and pricing, we will work with partners on those," he said. But as far as the service fulfillment, EDS already does much of that from a place somewhat behind the scenes.

John Cachat, the chairman and founder of IQS Inc., plans to talk a bit about supplier recovery. But rather than suggesting ways for OEMs to pass off more of their warranty costs to their suppliers, Cachat plans to talk a little bit about how suppliers can defend themselves against such efforts. Cachat also plans to talk about TREAD Act compliance, advanced product quality planning, as well as Sarbanes-Oxley compliance.

Product Recall Simulation

And then, in the Regency Ballroom, the first day of WCM will conclude with a simulation of a product recall featuring a bit of role-playing by four experts in the field, who will act as if they're working for a water heater manufacturer that's trying to decide whether one of their product lines is in need of a safety recall. Richard Cohen, senior vice president of the Garden City Group, said he will initially take on the role of the "evil moderator," although from the outline of the exercise described to Warranty Week, there really are no villains in this show.

The Garden City Group traditionally assists companies with the identification of individuals who are impacted by some type of an action, such as a class action lawsuit settlement or perhaps a bankruptcy filing. It can help a client with everything from the filing of legal notices and publicity for the settlement through the processing of claims and the operations of a call center. Typically, GCG is called in once a settlement has been reached, and needs to be implemented.

So what it's doing at the WCM Conference is delving deeper into the initial phases of the recall process than is its custom. Normally, the Garden City Group would help a company conduct a product recall, once the company and/or its regulators have decided that a recall is necessary. But this panel will begin with the appraisal of failure data that forces a company to make some hard decisions.

Weeks ago, each participant received a copy of the hypothetical facts of the case, and a summary of what role they will play. It's supposed to be a water heater manufacturer that finds a pattern of failures in a product they sold, forcing them to decide whether to issue a product recall or not.

Cohen said he sees warranty and recalls as very closely related. In some ways, a recall is like a catastrophic warranty claim, where instead of 2% or 5% of the products coming back for repair, it's more like 90% or 100%. And it's also different in terms of stress and emotions, he said, depending upon the perceived risk. For instance, if it's a battery producing the wrong voltage, it's not so catastrophic. But if it's a medical device that's malfunctioning in a way that affects health, people get worried. And it's his job to make sure they don't panic.

"At the end of the day, there are two major issues: the safety of the public and the reputation of the organization," Cohen said. "Our job is to help manage misinformation, and to make certain people get what they're entitled to, no more, no less."

Dr. Edward Heiden, president of Heiden Associates Inc., will be the risk analyst. "I will be looking at the issue of whether there's enough data there to decide that we have a product defect that warrants a recall," Heiden told Warranty Week. "Therefore, I'll be talking about what kinds of data I relied on, how I looked at company data, and how I looked at data from the outside, and weaving it through a story of how you do use all these data that are available: warranty data, complaint data, etc."

Then Heiden will -- spoiler alert -- work with the other panel members to design the actual recall of the water heaters, working with the other panelists on the design of the communications strategy and then determining its effectiveness. "I think it's a good way of bringing up the issues and getting people's attention," he said. "Hopefully, we're make an impression."

Heiden's company is in the business of helping manufacturers look for cost-effective solutions to their product safety problems, with particular experience in risk analysis and product recalls. He actually worked for the U.S. Consumer Product Safety Commission from 1976 to 1979, and founded his own consulting firm soon after leaving the agency. Since then, he said he's consulted with more than a hundred clients for what he calls recall counseling.

It's a lot like warranty management, he said, but at the same time it's a bit different. "Warranty management involves the same kinds of interpretive moves on the data," Heiden said," and the same kinds of searches for patterns and spikes, and determining those spikes against a baseline." But there are additional requirements and decisions that are specific to recalls, and Heiden said he hopes attendees get a flavoring of those.

Jeanne Finegan, senior vice president of the Garden City Group and an accredited public relations professional, said she will play the role of a communications manager who has to design and execute the product recall notification and outreach program for the water heater manufacturer. Finegan said she's put together several high-profile class action notification efforts for GCG clients in the past, so this is something she knows how to do quite well.

"Basically, what we want to do is create some thought-provoking situations," Finegan said, "in regards to when a recall will actually be triggered, and with respect to the manufacturers, what obligations and duties they have in terms of post sales duties to warn customers that there may be a problem."

Finegan said her specialty is to help clients understand who their customers are and how they can best be reached through various media and communications channels. "I started out as a reporter," she said, and then she went into public relations and media research. "My background is in the news, and my background is in public relations." So she feels she knows the media from both sides. And she's also worked with the Consumer Product Safety Commission as an outside expert on a streamlining of the whole recall process.

Finally, Donald Cassling, an attorney with Jenner & Block LLP, is going to play -- no stretch of the imagination here -- a lawyer. As the water heater manufacturer's attorney, one of his tasks will be to decide whether the pattern is clear enough to merit a recall, or whether more research is needed. He'll explain what kinds of notifications are required in regards to the Consumer Product Safety Commission, and what kind of relief should be offered to consumers.

Cassling said he'll get very specific as to the requirements of Article 2 of the Uniform Commercial Code, which governs sales of goods and therefore many aspects of a breach of warranty lawsuit. He said he's been focused almost entirely on UCC law since 1982, although he's also done some work in patent infringement and bankruptcy cases. Indeed, at the bottom of his Web page, there's a long list of some of the writing he's done about Article 2. Some of that interest came out of the time he spent as a student at the University of Chicago, he said, where there has always been a heavy emphasis on the UCC. And some came out of the experience he's gained at Jenner & Block, where the partners have a long history of publishing books and articles about the subject.

"Most of my experience is in Article 2 warranty issues for sales of goods, although I've also done product recall cases," Cassling said. "So one of the things I'll want to talk about is not only the product recall issues from the legal perspective, and the decisions that are made about when to negotiate a product recall, but also to touch on how that impacts on the warranty process as well." And that includes not only express written warranties, but also the implied warranties of merchantability and fitness for a particular purpose.

Cassling said there is a cost-benefit analysis to be done and some interesting decisions for a company to make regarding the relative merits of products recalls and warranty claims. Companies might want to choose one route or the other, depending upon what the expected costs will be, and over what time period those costs will arise.

"To me, it seems you really have to look at both the warranty side and the product recall side," Cassling said. "They affect each other, but the damages and the costs could be different depending on which road you go down."

Another issue to be considered is whether the parts or components involved were sourced from another manufacturer, and if that manufacturer could in any way be held liable for all or part of the cost, be it a warranty action or a recall.

"It think it will be fun," Cassling said. "I do think the interplay between the damage issues and the cost issues -- between recall and warranty -- is something that hasn't been looked at a lot."

Busy First Day for WCM Attendees

So there you have it. Day One of the Warranty Chain Management Conference starts early and goes full speed all day. And with seven panel discussions running either two- or three-at-a-time, there will be hardly any idle moments.

However, unlike last year, there are no blackjack tables or showgirls competing for the conference-goer's attention. At least we're not aware of any such diversions available at the Hyatt Regency Hotel. But soon after the conclusion of the product recall panel, the lunchroom side of the ballroom is going to turn into the venue for a cocktail reception, sponsored by Snap-on Business Solutions. Perhaps somebody will put on a funny hat and sing us a song?

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