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Warranty management for manufacturing and sales organizations is becoming an intense focus area. Warranty spending by U.S.-based companies surpasses the Gross Domestic Product of some nations. But warranty is an avoidable cost, if managed efficiently and judiciously. As warranty also involves customers directly, the larger imperative of organizational image is at risk. A prelude to warranty management is information stability, consistency and transparency.
by Sudripto De and Sandeep Kumar
As the world economy turns a historic page in its embrace of globalization, the fledglings of yesteryear are providing cut-throat competition to the formidable behemoths. Add to this the escalating customer expectations of a ubiquitous "more for less" syndrome, and you find manufacturing enterprises are scouring for the ways and means to gain competitive advantage.
In the mature global markets, as products become increasingly commoditized and price advantage becomes an ephemeral reality, after-sales service and effective cost-control measures have emerged as the last two straws for competitive differentiation and potentially for survival. To cater to the after-sales service call, manufacturers of consumer durables have resorted to lengthening the warranty coverage as one of the means to create a differentiating impact on the market.
However, this has led to a gradual ramp-up of warranty costs. It is only now that organizations are beginning to realize that market forces prevent any roll-back of these warranty sops. Now the organizations see themselves trapped in a classic Catch-22 situation -- with the aim of surviving by roping in more customers, they have inadvertently increased their costs, brought risk to their brand and made survival difficult.
If you are the CIO of such a company, genuinely concerned about the worrisome condition of your enterprise, there is a major role that you can play. The Chief Information Officer plays a pivotal role to iron out the initial impediments before laying out a smooth track for warranty management in any enterprise. This article brings out the different sources of warranty data, a collaboration model for warranty data, the business dynamics of multiple stakeholders with respect to warranty management and displays ways to assess and improve warranty information maturity.
Warranty Is an Enterprise Problem!
We talked of the survival challenges of an enterprise due to escalating warranty costs. The larger the difficulty your Chief Financial Officer faces in arranging funds to service warranty commitments, the more unpleasant can be your boardroom scene! Does your boardroom resemble a battlefield whenever the unruly figures of warranty failures are discussed? Because warranty is a cross functional issue, it is not uncommon to see marketing, finance and service heads getting into head-on collisions with engineering, production and quality heads. It can be quite unpleasant and with little possibility of resolution, with each functional head hiding behind his/her mountain of data and firing bullets at the unassuming enemy. This is only the tip of the iceberg ridden with concealed mistrust, lack of cooperation and abuse of available information. This obviously raises the question on what needs to be done to get the cross functional teamwork going so that the root causes of the warranty related issues can be tackled.
Warranty should not be a game of "passing the monkey."
As a CIO, this is what you will observe while sitting quietly in the stands. Most of your colleagues handling various functional disciplines will not allow their white shirts to bear the stains of warranty. So, most of them will maneuver to steer clear of this warranty quagmire.
It generally starts with marketing, which passes the monkey to service, and attributes dipping sales to escalating warranty failures in the market. Smart marketers would juggle figures so as to project a perfect negative correlation. Service, in their part, will shrug the monkey off their shoulders to quality, holding them responsible for their porous gates. Quality guys are analytical enough to take recourse to recondite statistical techniques and potentially manage diversions to production and purchasing, squarely blaming the products, process, paraphernalia (machines and tools) and the persons involved.
Production and purchasing would in their turn adopt their age-old evasion tactics, and train their guns on engineering, citing evidences of poor design, inadequate testing and immature design re-use. The sharp and creative engineering heads would not take the blows lying down. They in turn would foist the monkey back to marketing, clearly demonstrating cost and time constraints and designs commensurate to budgets. In this "game," precious time would have elapsed and the warranty monkey would have grown big enough to erode away most of the enterprise net worth through increased warranty costs, recall expenses and warranty reserves.
This type of warranty handling is not very efficient. The mistrust and blame-game among various functional groups is chiefly borne by the fact that they do not have a holistic integrated view of information and lack processes and systems that help collaborate on warranty. But because a CIO is the custodian of an entire enterprise's information, the CIO is in a unique position to take up the fight against warranty.
The War against Warranty: The CIO and Managing the Information Challenge
As you take up the role of getting all your colleagues to train their guns jointly against warranty, soon you will realize that it is not an easy battle to fight. There is an incessant battery of defects and defectives pouring into service stations by the millions, day in, day out. And your own weapons, of which information is the most lethal, raise more questions than provide answers.
Some of the concerns about information emerge from the answers to the following questions:
- Is there enough information available to act upon?
- Is the information shared transparently across the organisation?
- Is this information accurate and authentic?
- Has this information been made available at the right time?
- Are there efficient methods available to analyze the information?
All this points to how pivotal the CIO's role can be in this war against warranty.
It is imperative that the CIO first develops an effective information technology infrastructure, which can then be leveraged to provide the necessary intelligence in the form of early warning signals. These will immensely facilitate the development of effective strategies for the "soldiers in the field." Some of these strategies will look like:
- The optimal actions that need to be taken in the field or service stations to contain widespread calamity, and
- A set of focused offensive actions to eliminate the root causes and prevent generation of further defects at source.
Once the strategies are developed, the next task in front of the CIO is to facilitate seamless network among the various functions such as service, quality, production, suppliers, engineering and product development. This will bind them together to fight a common enemy called warranty.
In the following sections we delineate the various steps to be taken to go about implementing the integration of information in an enterprise to tackle warranty issues.
Warranty Information Collaboration Model: Leveraging the IT infrastructure
A first step is to take a look at the various sources of warranty data that can be leveraged to provide an integrated and seamless analysis and action capability. The figure below provides a snapshot view of these sources.
Details of Information Buckets to Mitigate Warranty
Source: Infosys Centre of Excellence in Warranty Management
Information for warranty mitigation is primarily stored in six information buckets. Figure 1 above gives a clear picture of the various information buckets. These are enumerated as:
- Diagnostic Info: Information about diagnosis of a field failure
- Claim Info: Information contained in the warranty claim form
- Analysis Info: Information obtained out of analysis of data
- Production Info: Information from production shop floor
- Product Info: Information about product and its life-cycle history
- Correction Info: Information displaying corrective actions to mitigate defect
As a next step, it is imperative to put in place a collaboration framework that defines the interactions and the interplays between the various sources of warranty information. We provide below an information collaboration model which will act as the basic framework for developing partnership and integration among various functional groups in the organization, with the sole objective of mitigating warranty.
Warranty Information Collaboration Model
Source: Infosys Centre of Excellence in Warranty Management
As is visible from Figure 2 above, the information collaboration model is quite complex. There are multiple sources of information in your extended enterprise, which includes all your service centers or dealers and the multiple tiers of suppliers, apart from the numerous functional entities in your enterprise. The information buckets are also quite complex, and multiple sources have to contribute wholesomely to complete the information bucket.
Each star symbol in Figure 2 manifests into a set of information in the enterprise. For example, when we are considering engineering and product development functions, then the set of information represents:
- BOM (Bill of material)
- ECN (Engineering Change Notifications)
- Design and Performance Specifications
- Drawings and 3D CAD (Computer Aided Design) data
- Parts evaluation and approval records
- VAVE (Value analysis and value engineering) and Kaizen records
- Failure modes and effects analysis, advanced product quality planning, measurement system analysis and Production Part Approval Process records
Having drawn up the information collaboration model, the next step would be to analyze the information available in the "as is" scenario around information quality and consistency. The quality of information available predicates the nature of analysis that can be done and the capabilities in warranty management that can be developed.
Information Quality Assessment
The next step then is to do an assessment to gauge the health of your enterprise with regards to information.
Eliciting information is a daunting task. And attached to these impediments are a set of business threats of which you as the CIO must be cognizant. A clear understanding of these threats will help in comprehending the impact these challenges will have on your business. We do not intend to provide in this paper the strategies to be adopted for eliciting such information, but would provide a basic maturity model for you to figure out where your organization exists among other players in the arena.
For our readers to have a better comprehension of the complex information elicitation process and the ensuing predicaments, we are providing a case study, based on Infosys experience in warranty management. As a CIO, you may observe similar problems in your enterprise, and carry out a scorecard methodology for determining the maturity of your enterprise.
Some of the basic problems which were encountered by this enterprise while assessing their position as per the maturity model were:
- Some of the joint diagnostic exercises can be carried out on site by a cross-functional team of OEM service, OEM engineering and supplier quality groups, to pinpoint the component which was causing the assembly to fail were never recorded. Because these teams were ad-hoc, they dispersed immediately after the diagnosis was over without preparing any elaborate report and critical information regarding the diagnosis methodology was lost.
- Some of the vital details of diagnosis are captured in the service job cards. But since the warranty analyzers have no access to these cards or the information contained in them, the diagnosis information does not flow upstream.
- As the service partners see information provided in claim forms as a coupon for cost re-imbursement, their focus was on cost aspects. So the vital text information which provides details of activities at the service is never filled, while submitting claims.
- Most of the times the service partner would fill in generic defect codes in the claims submitted. Lack of proper defect codes would greatly handicap the quality analysts to carry out accurate analysis of the warranty data, and the enterprise would lose heavily on uncontrolled warranty costs.
- Many a times critical claims were submitted by the service partners after two to three months. Even though the OEM gained in delayed reimbursement, on analysis it was observed that this inordinate delay would kill any scope for dealing deeper into the claim. Replaced parts would have been scrapped or damaged, obviating any scope for further analysis.
- The enterprise based its analysis on archaic spreadsheet techniques. Due to lack of standardization, multiple agencies would interpret data differently, and reach contrasting results. The inaccuracy of analysis results led to inability of ascertaining the root cause of failures. Many times we could observe suppliers getting off the block, due to lack of convincing evidence.
- Information related to in-house defects and their trends was inaccurate and insufficient. Most of the time there was a huge information overload, but rummaging the right information from it was an uphill task.
- We also observed that a lot of information was not updated, and many such quality information sheets which should be present in the shop-floor were not available. So, establishing traceability was practically impossible.
- Product specifications, evaluation tests carried out during product pre-launch stage were being kept as closely guarded secrets. What was alarming was that vital information which could solve many market failures within an hours analysis of product, would take months. This would further aggravate the failure scenario in the market leading to a lot of back-biting and blame-game.
- Most of the information available in service manuals was not updated, even though products and their drawings had been through multiple Engineering changes.
- The major problem in correction info was its lack of widespread knowledge across the service network. The ignorance of many service partners would lead to their frustration in replying confidently to customer complaints for parts for which actions had been taken long back. Also many such service partners would carry out their "research" in the field right from the scratch.
- We also observed that many corrective actions were not thoroughly recorded for the cutoff serial number of the parts and the identification mark in the corrected component. This would lead to dilution of monitoring mechanism in the field.
The details given above have been summarized in Figure 3 below displaying the strengths and weaknesses of the enterprise with regard to its information systems through a data maturity model.
Information Delinquency in the Enterprise
Warranty Mitigation Perspective
Source: Infosys Centre of Excellence in Warranty Management
A thorough understanding of the information landscape of the enterprise will help organizations to identify their weak spots, take actions to clear out the "red" mess, and enable efficient and effective information elicitation. Once the strong foundation of completeness and quality of information has been created, the next step is to go for information integration to unearth intelligence.
Information Integration: A Prelude to Warranty Intelligence
Information integration and availability is the backbone to tackling warranty issues. As discussed, it is imperative that as a first stage, the above steps of identifying the sources of warranty information and assessing the health of these sources is carried out. Once the scenario is clear organizations have to take concrete steps to improve processes, procedures and policies to remove the information roadblocks. The first stage then involves information consolidation and addressing any information gaps around adequacy and availability. It would additionally involve use of all kinds of warranty information, structured and unstructured and being able to apply the same through standard data analytics.
Once this information backbone is in place, companies can graduate to the next level of monetizing this information. Companies can use powerful text analytics and unstructured data analysis to help mine the rich information buried therein and enable quicker identification of warranty problems through early warning capabilities and to help address these early in their life cycle. Use of sophisticated ontological and text analytics capabilities can help model and identify warranty issues.
Bringing such domain capabilities into warranty mitigation will vastly enhance the root cause detection capabilities of warranty analysts in the industry, and will go a long way towards reducing warranty expenditures and exposure.
About the Authors:
Sudripto De is a senior consultant in the Manufacturing and Supply Chain Practice, Domain Competency Group, Infosys Technologies Ltd. Sudripto has over 14 years of industry and consulting experience with large enterprise automotive firms in the areas of supply chain improvements, field warranty and in-house quality management, product and process cost reductions and new product development. He holds a graduate engineering degree and an MBA from the University of Delhi. He can be reached at Sudripto_De@infosys.com
Sandeep Kumar leads the Manufacturing and Supply Chain Practice at the Domain Competency Group at Infosys. Sandeep has a mix of line management experience in manufacturing concerns coupled with consulting experience with Fortune 500 companies. He has consulted leading manufacturing and retail customers in helping them transform their supply chains. Sandeep has a number of publications to his credit and has been quoted in Supply & Demand Chain Executive. He can be reached at Sandeep_Kumar@infosys.com
The IWCM Launches a Best Paper Award for 2008
The Institute of Warranty Chain Management (IWCM) is pleased to launch a contest to encourage the creation and documentation of ideas and best practices in the warranty industry. Authors are invited to submit papers on warranty-related subjects which encompass the whole warranty value chain.
Glen Griffiths, president of the Institute, said it's part of an effort to generate content, which in turn will be offered to members. "We want to encourage people to write papers about warranty," he said. Basically, there are numerous PowerPoint slide decks floating around, but not a whole lot of Word documents.
Papers must be written in English and should contain a minimum of 5,000 and a maximum of 10,000 words and must include an executive summary and/or abstract as part of the word count. Papers must be submitted to the IWCM via email to Alison.Griffiths@iwcm.org by 5pm PST on Wednesday, January 16, 2008. The winner of the competition will be informed via email by Thursday, January 31, 2008, and will be announced publicly at the WCM Conference.
Papers will be judged on relevance and comprehensiveness of subject content, originality and contribution to warranty thinking. The paper determined by the IWCM review committee as winning this competition, based on the above criteria, will be invited to present their paper at the Warranty Chain Management Conference in San Diego. The winner will qualify for a round trip coach class ticket to San Diego (up to $1,000), three nights hotel accommodation at the Hyatt Regency and entrance to the WCM Conference itself (total value of $2,900).
Subjects eligible for the award include, but are not restricted to:
- Warranty Management,
- Warranty Management Systems,
- Managing the End-to-end Warranty Chain,
- Warranty Policy,
- Warranty Administration and Registration,
- Warranty Tools and Techniques,
- Early Warning Systems,
- Warranty Service and Support Chain,
- Warranty Logistics and Supply Chain,
- Extended Warranties,
- Warranty Benchmarking and Metrics,
- Warranty Cost reduction,
- Design for Warranty, and
- Finance aspects of Warranty.
All decisions by the IWCM review committee on the winner of the competition are considered final. This prize is not transferable. A substitute cash prize of $750 will be available if the winner is unable to attend or present at the WCM conference.