March 4, 2008

WCM Preview:

Attendees at the Warranty Chain Management Conference will have their choice of two panel discussions and survey overviews on Thursday morning. Via different routes, both come to much the same conclusion: more work needs to be done on document communication and collaboration efforts.


People headed for the Warranty Chain Management Conference this week might want to figure out a way to split themselves in half so they can attend both of Thursday morning's sessions.

In one ballroom at the Hyatt Regency Mission Bay, Robert Baxendale Jr., BearingPoint's senior manager of the automotive practice, will deliver the results of a massive global automotive warranty study, followed by a report and discussion about three major warranty-related initiatives at the Automotive Industry Action Group, led by Marianne Grant, chairman of the AIAG's Early Warning Standards Work Team and vice president of the Institute for Warranty Chain Management.

In another Hyatt ballroom, Joe Barkai, the practice director of product lifecycle strategies at Manufacturing Insights, an IDC Company, will detail the results of a recent survey his company did regarding Information Technology deployments, priorities, and investments in the service chain. Then Barkai will chair a panel discussion featuring representatives from Palm Inc., Ford Motor Co., SAS Institute Inc., Accenture, and EDS.

Failure to Communicate

BearingPoint�s Automotive Practice recently teamed with AIAG, the Original Equipment Suppliers Association (OESA), the European Association of Automotive Suppliers (CLEPA), and Warranty Week to study warranty management challenges in the auto industry by means of a global online survey.

Spearheaded by BearingPoint's Robert Baxendale Jr., the survey confirmed that automotive warranty professionals are still dogged by a lingering failure to communicate. As is detailed in the 40-page report on the results of survey (click here to see a copy of the PDF file:, more than 200 automotive warranty professionals took part, including significant representation from both the European and North American sectors. It also attracted a significant number of suppliers, in addition to OEMs manufacturing both passenger cars and heavy equipment.

Bob Baxendale

"We saw that collaboration and communication is not as effective as it should be," Baxendale told Warranty Week. OEMs aren't communicating effectively with their suppliers, and dealers aren't communicating effectively with their OEMs. That is, unless somebody is looking to get paid, in which case the communication seems to be both effective and immediate.

The survey does point out some encouraging signs. For instance, most of the respondents seem to agree that detection to correction times are shortening across the industry, thanks to early warning analytics and other technologies. These and other encouraging signs were detailed in a special "message to OEM and supplier executives" on page 7 of the report.

"We're not trying to say 'Woe is the industry,'" Baxendale said. "They're working hard. But they're not working as fast as they should to improve the processes."

Time For a Chief Warranty Officer?

Baxendale said he was a little surprised that so many survey respondents said there was still so little centralized co-ordination of warranty activities going on within their companies. He said he expected the survey to find that every division and subsidiary had its own warranty-related activities, but he thought there would be someone in charge of them all on an enterprise-wide basis. However, what he found was -- you guessed it -- a failure to communicate.

"In some of these organizations, they do have a centralized, coordinated management team that has the funding to help direct the activities that are going on across all the different organizations," he said. "They're putting software in place that will facilitate the cross-departmental and cross-partner communications, so that they're all working towards the same objectives and they're sharing information. We find in some companies that the warranty information is used by the warranty people, and they may communicate to the manufacturing plant that there's a problem, but they don't generally share all the information with them. There's a severe latency to the information -- even more so when you're talking about the suppliers."

Baxendale said the amount of money at stake for some of the largest OEMs certainly seems to merit top-level executive attention, perhaps even from someone with a title of Chief Warranty Officer. "If you take some of the money that you're putting into the reserves," Baxendale said, "if they spent a little bit of that money to invest in managing the warranty processes and improving the warranty processes, that would more than offset the cost of the organizational support that it gets and the software systems that are needed to facilitate the integration.

One question asked respondents which way their warranty costs have been trending over the past three years. Around 60% of the OEMs said "lower," while almost 40% of the suppliers said "higher." In each group, only 20% or so said costs have remained steady, and only one OEM respondent replied "don't know." A question on warranty incident rates produced similar results.

Cutting Warranty Costs

Cutting those costs and incident rates is of course a major priority for automotive manufacturers, but Baxendale cautions that there's a right way and there's a wrong way to reduce warranty costs. "You make an error in judgment when you say 'we have to reduce our overall warranty,' and your efforts to reduce the overall warranty include cutting staff, cutting budgets for programs and systems that are going to help facilitate the sharing and capturing of information, the diagnostics, and helping the suppliers to get involved," he said.

Baxendale said it's somewhat short-sighted to think that cutting staff and avoiding IT upgrades will cut warranty costs. It may cut the budget in the short term, but it may also result in more claims over the long term, especially if the staff can't keep up with all the emerging issues. And it may ultimately have an impact on customer satisfaction, which could translate into lower sales.

Warranty data will only provide an early warning if it is properly processed, he said. And the use of early warning signals to reduce defects and prevent them from ever leaving the factory floor is where true cost savings will come from. That also results in a better product, fewer failures, higher customer satisfaction levels, and more sales.

But in listening to Baxendale as he goes into detail about the survey results, you get the feeling that there's this core group of warranty professionals who "get it," and then there's all these top-level executives who don't. The people in the first group are the ones attending the discussions. But the people in the latter group are the ones who control the budgets. They see a warranty cost figure and they want it cut in half within two years. They don't want to invest in shorter detection-to-correction times, faster root cause analysis, or better collaboration tools for business partners to use. They simply want to pay out less.

"It just surprises me, with all the work that's been going on, all the discussions, all the communications, all the collaborations, and all the efforts to try and improve the processes, that both OEMs and suppliers still do not feel that the warranty process is real effective," Baxendale said. "They're working hard, but they're not getting the progress they were hoping for."

In one question, suppliers were asked how long it usually takes to receive both claim data and parts from their OEMs. More than 35% said it takes one to two months to receive parts. More than half said it takes a month or more to receive claim data. Another 8% said they never receive parts and another 7% said they never receive claim data.

In another part of the survey, 75% of suppliers said they do not get enough information from OEMs to perform effective root cause analysis and 77% said it takes too long to get whatever data they do receive. Overall, Baxendale said the suppliers complain that they aren't getting the information they need to:

  1. Support the customer and solve the problem,
  2. Support the OEM so the problem doesn't recur, and
  3. Manage the process so they can control their own warranty costs.

"They keep saying it: 'Call us in quicker. Get us involved quicker. We can help. We can solve the problem.' They're the ones, in many cases, that did the design," he said. But their pleas, while they find sympathy and support within the OEMs, don't get translated into action. This, the BearingPoint report suggests, is part of a "collaboration dichotomy," where there is a wide gap between thoughts and action.

Collaboration Dichotomy

"They continue to talk about it, both on the OEM side and on the supplier side," Baxendale said. "But the talk seems to be much more than the actions. And that's why the activities of the AIAG Early Warning Committee and the AIAG-OESA Consumer-Centric Warranty Management Project are driving to increase that. An Early Warning System is trying to improve it by getting standards for how to communicate, what to communicate, and what the data standards are to communicate, so they can pass it very quickly and easily, and when you get the data you know exactly what it means."

Baxendale said that despite all the warranty work that they do, the dealerships are also not as involved in the warranty process as they could be. "Although most of the conversation is around the involvement of the OEMs and the suppliers, and sharing data there," he said. Some have gone as far as to form teams that attempt to race out to the dealerships to get a first-hand look at a vehicle while it's still up on lifts.

However, that will only work if the dealers can quickly notify the team, because otherwise the customer is going to be waiting an unacceptably long time. For the same reason, the travel time can't be too great, which means that only dealers within a small radius can be helpful. And how often will any one dealer see a specific problem? So once again, it comes down to a communications problem: timing, distance, and frequency.

And then there is the massive problem where parts are replaced, warranty claims are filed, and there's no trouble found with the returned part. Was it because the part fails only in certain kinds of weather? Was it the interactions of two or more parts that produced the failure? Or was the part replaced needlessly? After the repair is completed, it's not always easy to figure out. And all these NTF parts further complicate the root cause analysis, because there's nothing visibly wrong with them. This creates "noise" that can obscure the actual problems that result in warranty claims.

The Trouble With No Trouble Found

So what can be done about NTFs? On the one hand, the dealership is simply trying to please the customer by replacing parts until the problem is eliminated. And they're not about to install a part and then uninstall it when the problem remains unaffected. But they want their claim to be paid. So they write in their claim forms that a that a seemingly bad part was replaced. However, when the supplier tests the part, it seems to work fine. But by then, it's too late: the part has been returned and the warranty claim is awaiting a payment.

It's somewhat surprising that after more than a decade of heavy Web usage, 15 or more years of heavy email usage, and 20 or more years of heavy fax machine usage, that data communications remains such a challenge. Microsoft Word, Excel, HTML, XML, and PDF provide enough formatting standards to allow widespread document exchanges without fear of incompatibilities. And that's not to mention the advent of mobile phones and digital cameras that can capture an image and send it anywhere at the speed of light.

So why this failure to communicate?

One problem is that vehicles don't speak HTML or Word. The diagnostic information the vehicles can provide is still usually in a format that few can understand and even fewer can package and communicate. But more basically, the dealer wants to communicate information that results in a warranty claim being paid -- nothing more, nothing less. In fact, anything more and they'll be looking for additional compensation. Anything less, and they might be helping to further reduce one of their last dependable revenue streams: warranty work.

Baxendale suggested that one way of spotting the dealers that would be most helpful from the point of view of early warning research would be to look for those with a low ratio of warranty work to customer-pay work. Those dealerships with a very high ratio of warranty work to customer-pay work may be too dependent on warranty work to be helpful. And, if their customers aren't coming back for service after their warranties expire, there may be a customer satisfaction problem.

On the other hand, those with a heavy load of customer-pay work may be exactly the kind of dealerships that try to form long-term relationships with their customers. And that relationship-building effort might extend to these OEM-supplier teams racing around to find failures in the field.

Next Steps

On March 19, there will be a breakfast meeting sponsored by AIAG and OESA at the MSU Management Education Center in Troy, Michigan, at which Baxendale will once again discuss the results of the survey. John Chalifoux, the vice president of business development at OESA, and Mike Prusak, the director of product development at AIAG, will kick off the half-day proceedings at 8am.

They will be followed by Baxendale's presentation, which in turn will be followed by a panel discussion featuring Dave Mimms, general manager, product quality assurance, Toyota Motor Engineering & Manufacturing N.A. Inc.; Mike Roberts, warranty strategy manager, Ford Motor Company; Daniel E. Paterra, vice president, manufacturing & quality, BorgWarner Inc.; and Dave Sakata, vice president, technology, Freudenberg-NOK General Partnership.

Some of those same folks will be speaking at a separate meeting of the OESA Warranty Management Council, scheduled for March 26 at the Somerset Inn in Troy. Baxendale is scheduled to speak after lunch, and he will be followed by an update on the Consumer-Centric Warranty Management Project and then a roundtable discussion about the WCM conference.

Then Baxendale said he will take his road show to Europe. On April 16, CLEPA is holding an Automotive Warranty Conference in Brussels which will include "a presentation from BearingPoint on the key findings from the recent Global Automotive Warranty Survey, including a CLEPA-specific analysis focusing on responses from European Suppliers," according to the invite.

Baxendale said he's still crunching the European responses, so he doesn't yet have any firm conclusions about regional differences. But so far he said it seems like the Europeans are more confident that their warranty periods will remain stable in the near future. In the U.S., he said, respondents seemed unsure whether their company's warranties will be lengthening or shortening in the years ahead.

Meanwhile, European respondents were much less likely to know their NTF rates than their North American peers. And on both continents, OEMs were less likely to know their NTF rates than were their suppliers. Baxendale said this probably has to do with the fact that suppliers work with fewer different parts and fewer customers than do the consumer-facing OEMs, so they're more aware of the problem.

Baxendale said he's also submitted the report to David Cole's Center for Automotive Research as a possible topic for their next round of Management Briefing Seminars in August.

AIAG Panel to Follow

After Baxendale presents the findings of the automotive warranty survey, a panel of automotive warranty experts under the banner of the AIAG will take the stage to discuss their own standards-making work as well as the state of the industry.

Marianne Grant

In the past, the WCM's AIAG panel has usually featured Marianne Grant along with several other AIAG members from companies such as Toyota, General Motors, Navistar, Johnson Controls, Metaldyne, and others. Grant said that team members will be there again this year to join the discussion and they'll be there to speak on behalf of the AIAG as well as perhaps to give examples from their own companies related to all of the AIAG Warranty initiatives.

"It's going to be a little different this year," she said, "in that we will still provide an update about the Early Warning Standards project -- which is what we've been talking about for the past two years -- but I will also going to speak about other initiatives AIAG has around warranty. There is a lot of work going on there, and I thought it would be interesting to give a broader perspective."

Grant said there are actually three major warranty initiatives now under way at AIAG:

  1. The Early Warning Standards Project,
  2. The AIAG-OESA Consumer-Centric Warranty Management Project, and
  3. The Truck and Heavy Equipment Warranty Work Group.

The goal of the Early Warning Standards Project is of course to develop standards that can cut warranty costs by speeding up the detection-to-correction cycle time, reducing defects, and improving product quality. The Consumer-Centric Warranty Management Project is examining the impact of warranty on the buyer and on dealerships, as well as examining the effects of No Trouble Found. The Truck and Heavy Equipment Warranty Work Group has already developed a set of standard warranty codes to facilitate electronic document interchanges between OEMs, customers and suppliers.

AIAG Chief Warranty Officer?

"Now what we're doing at AIAG is pulling all these efforts together into a more coordinated kind of program, because it's the same business process that we're dealing with," she said. For now, she said, it's an informal co-ordination effort that is in the process of becoming a very formal co-ordination effort, with a steering committee and regular meetings.

"What we're really saying is if you tackle the whole process, from the consumer all the way through the supply chain, you don't just end up with better quality. You also end up with lower cost," she said.

"What we saw in the results of that survey is absolute validation of the concerns and the desire to do something about business problems," she said, that are driving the whole AIAG warranty effort. "Those projects have been trying to come up with new business processes and new approaches to how to handle these problems. But some of them have not yet gotten the traction they probably deserved in the industry, because they require the industry to make radical shifts in the way it does business. And I think what that survey showed is that they've got to make that shift."

Grant said she thinks the survey will help top automotive executives understand that the warranty problems they thought were their own are actually widespread across companies. "And if they truly start as an industry to make some of these changes, I think it will benefit everybody."

Grant said she hopes that people in the appliance, computer, and aerospace industries will also benefit from attending the panel, primarily through gaining an understanding of how it really will take an industry-wide effort to make these changes happen. The effort needs the help of not only some of the large OEMs but also some of their suppliers, and in turn their suppliers.

She said she knows of some non-automotive OEMs who are working with their business partners on warranty standards projects, and hopes that some of these projects soon find a home at industry trade groups. It really does require the help of an AIAG-like entity over multiple years to get multiple competitors to agree, she said.

"It's happening slowly in our industry, but it is happening."

Plus, now that there is so much electronic content in a typical vehicle, and so much of the warranty process revolves around defects in the electronics, she said there is now a significant overlap between the issues in the automotive and high tech warranty processes. And with the same trend towards computerization occurring in the appliance industry, the supplier, diagnostic, and No Trouble Found issues common in automotive warranty work are arising with white goods as well.

"There are common problems, and there also common solutions. And I think there is now a conversation that can happen around not just how you create, develop and deploy those components, but also how you support and warrant them."

Pressure to Change

Grant said she thinks 2007 was the year that automotive people really sat up and took notice of warranty. "There really has been a stepping-up of the globalization of the automotive industry. We've been talking about it for the last two or three years, but I think we are really talking about it now."

Some of the possible reasons for the increased focus include the warranty-driven sales success of Hyundai, the worldwide growth of Toyota, the incredible recent growth in the so-called BRIC countries (Brazil, Russia, India and China), and related to that, the threatened appearance of a $2,500 car in India and possibly in export markets as well. Those trends have made American producers focus on their own costs and quality, and by the way, have caused them to turn their own export efforts up a notch.

"We're seeing the U.S. automotive companies becoming almost as strong in those markets as they are in their own market," Grant said. And of course with Toyota, Honda, and Hyundai employing thousands of Americans at U.S.-based auto factories, making vehicles for U.S. customers, it is making less and less sense to speak of the nationality of a given company or vehicle. They're all turning into global brands.

"We're seeing a really radical shift in the way the automotive industry is marketing itself globally, and also in the way the products are being produced globally," Grant said. Translated into warranty work, there is a growing need for industry-wide and international standards that can speed the communication of warranty documents between a brake company headquartered in Stuttgart, a Swedish seat belt manufacturer with offices in Utah, and an American design team that works for a Japanese automaker from facilities in Kentucky.

"We're providing the model that people can use to connect themselves," Grant said. "And in some cases we're providing actual business processes, which if they executed them would ease that communication and that collaboration around service, including warranty. But, what we're not doing is building software to deliver it." Hopefully, some enterprising company will take up the model and develop a network and software for it, but Grant said that work is far beyond the scope of AIAG's mandate.

Welcome to the Institute

Most of the discussion about the opening of the Institute for Warranty Chain Management will be handled by iWCM president Glen Griffiths on Wednesday morning, but in advance of that presentation, iWCM vice president Grant had a few comments of her own. As with the AIAG's warranty standards effort, the iWCM has been criticized for seemingly taking a long time to produce results.

"It's real work. And real work takes time, especially when people are doing it in their spare time," Grant said. "It doesn't surprise me that it's taken as long as it has, given what I knew we were facing. But I think what we're ending up with is something that is probably exceeding my expectations, in terms of the quality of the training programs and the Web site."

Grant said one reason for the seemingly slow and deliberate pace was a desire to launch with an array of content and services already available. "We wanted to have a sufficiently robust and comprehensive Web site presence that really looks like it was going to be the resource center that we're promising the warranty industry," she said. "Secondly, we wanted to have enough of our training programs fleshed out and the first parts of it actually delivered, so that people would have something to sign up for in the way of training when we launched the organization. We're very close to that point, and in fact at the WCM we will be announcing the organization, and telling people what we are going to be doing. And then very soon after WCM, we will actually open for membership."

IT Investment Survey

Joe Barkai

In another room at the same time as Baxendale and Grant deliver their automotive warranty overview, Joe Barkai of Manufacturing Insights will detail some of the trends uncovered by his recent survey of plans and priorities for investing in tools for the service chain.

"We did a very quick survey about the level of IT investment in overall repair and service chain," Barkai said. It looked at everything from warranty administration to workforce management, he said, looking for the answer to the question: "Can we track the impact of those on IT investments?"

Barkai said the survey attracted more than 245 responses, and was then augmented with in-depth interviews of select participants. Responses came in from all sorts of business units, he said, including people in call centers, help desk, field service, repair, and warranty administration.

"We asked about the level of completion of implementations of IT tools for certain activities," he said, and among those found to be at the highest levels of completion were customer relationship management (CRM), workforce management, and field service management systems. Various mobile workforce efforts built around handheld devices and mobile phones also scored highly, Barkai said.

As seen in the figure below, warranty management systems deployment levels were a few notches down, with about 44% saying they had fully deployed a system or would be fully deployed within the next 24 months. However, because the survey didn't ask for operational details or vendor names, Barkai said he suspects that some of these so-called "warranty systems" are nothing more than spreadsheets cleverly manipulated to produce reports and trends.

Figure 1
IT Implementation & Deployment Plans

Source: Manufacturing Insights

Source: Manufacturing Insights

"I think it's a matter of definition," he said of the responses. "It did not try to understand the level of maturity of these deployments." So if a home-grown Excel-based system is in use, and if it works reasonably well, some respondents could have conceivably counted it as a fully-deployed warranty management system.

Warranty as a Window Into Quality

Barkai said there are also some comforting results in regards to early warning and quality-related uses of warranty data. Early warning systems were reported to be fully installed by 34% of respondents, Barkai said, with another 8% reported to be in evaluation mode.

Those levels may not yet be at as high a level as CRM or field service management, but at least it's growing. People seem to at least be aware of the promise of warranty analytics to help them reduce costs by using failure data to fix defects before they leave the factory. But the actual funding of projects is still a tough sell.

"When we're looking at investment, I think it's still not getting enough actionable attention," Barkai said. "But I think we are seeing, from the root cause perspective, that people are trying to fix initial quality. In conjunction with that, I argue that given the intense competition, the rapid cycle time, the need to be very fast to market and to respond very quickly, there are always going to be quality spills. It's almost in the nature of the business."

Therefore, he notes, efforts to fix initial quality will always need to be balanced against the needs to cut costs and reduce production delays. "The trick is to use warranty as a window into quality, and develop very agile processes that can detect and respond very quickly," he said.

Another set of survey questions asked about priorities. More than 90% said improving customer satisfaction was a priority. About 75% said the shortening of detection-to-correction times was a high priority for their companies. Around 41% said detecting fraudulent claims was a high priority.

However, only 42% thought that improving supplier cost recovery was important, which Barkai said was a disappointingly low figure. Perhaps, he suggested, the reason it didn't rank higher was a recognition of how difficult it is to get a return out of these efforts.

Actual Investments Are Hard to Get

Given these responses to questions about deployments and priorities, Barkai said he then closed out the survey with some questions about the level of investment in new projects. What he found is that in general, IT budgets are shrinking, and more and more of the remaining budgets are being focused on keeping current systems up and running. This means that an ever-smaller proportion of the total IT budget is available for new projects such as those outlined above.

The proportion of IT budgets given over to ongoing maintenance and operations has grown from 42% in 2006 to more than 50% in 2008. The proportion of IT budgets available for what he called approved projects has decreased from an average of 40% two years ago to 33% now, Barkai said. But the proportion dedicated to evaluations and prototyping remains fairly steady at around 18%.

"It tells me there is always some money that people can put together to try different things -- to prototype -- but fewer of those actually become full projects," Barkai said. And that is going to impact warranty management projects, he suggests.

"I think that the level of attention is increasing," he suggests. "But I think the level of activity is not keeping up." While numerous companies are quite willing to deploy various small warranty-related pilot programs, he said, many times there's neither the will nor the budget to roll them out across the enterprise. So while it may look good on paper to have Such-and-Such A Company listed as a client, in reality they're stuck in evaluation mode.

The panel discussion that follows Barkai's presentation is expected to amplify and expand some of the trends uncovered by his survey. Larry Maye from Palm and Mike Roberts from Ford are to represent the OEM point of view, while Thomas Welsh of EDS and Olli Patrikainen of Accenture will provide the systems integrator perspective. Ed Katz of SAS Institute will represent tools vendors and solutions providers.

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