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The best organizational structure that can lead to lower warranty costs

Nabuath Khan Assistant Vice President, Analytics and Research
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October 29, 2016 - In continuation to the previous blog of How does the manufacturing world look at warranty cost today which described current worldwide situation and our approach of how to better drive warranty transformation, this blog takes it to the next level of understanding phases in more detail along with a use case.

Manufacturing organizations in today's complex environment must ensure that they are ahead of the curve with respect to both competition and customer satisfaction. That's why they tend to focus on individual functions (finance planning and control, engineering and design, procurement, manufacturing and quality, marketing and customer service) meeting their own critical parameters or KPIs, leading them into a trap of working in silos with no or minimal interaction between departments resulting in a non-cohesive approach of problem solving, which results in loss of time and opportunity to control warranty related issue when small.

In order to make warranty-related decisions in the context of product life cycle, and to consider the interaction between warranty and other decision variables, requires a change in approach to warranty management.

Each organization should begin with the bottom-up approach of understanding warranty-related issues as well as key responsibilities of departments within the organization.The Ideal Warranty Management should adopt a combination of the features such as being collaborative, farsighted, able to applying analytics, able to lead cross functional changes, willing to accept & share responsibilities.

This brings us to the key question of this blog: How should a business proceed with the implementation of strategic warranty management?

The holistic answer lies in the requisite of deploying a central warranty management department within the organization that is sponsored by a CFO, led by senior executives, and composed of a team of functional leads and managers of various backgrounds, such as design, engineering, reliability, statistics, marketing, customer support, IT, and management.

Figure 1: Example of central warranty management department

SeeClose detailed view

The bottom-line impact that can be achieved utilizing the proposed structure is what will excite the CFO-sponsor to drive this organizational transformation.

The following are key responsibilities of each member of the central warranty management department:

Executive Sponsor (CFO) should drive visibility across the organization, emphasizing that warranty strategy is not only an important element for new product development and pricing, but also critical for business success, and that it supports a set of cross-functional activities linking various departments, such as finance, design, procurement, production, marketing, sales, and customer support.

Senior Executive (Warranty Management Lead) is responsible for setting up the warranty management system and continuously updating it. He or she is also responsible for formulating warranty strategy alongside the executive sponsor and senior-level managers, who will monitor and resolve issues resulting from independent or conflicting cross-functional metrics.

Senior Manager (Cross-Functional Lead) needs to closely interact with the warranty management lead and various vertical leads to ensure that the overall warranty strategy for product lifecycle is aligned with other technical and commercial strategies.

Divisional/Vertical Leads need to evaluate the implications of the warranty strategy for their functional operations, and ensure that databases related tot their function are properly linked to the warranty management systems for effective transfer of relevant data. In addition, they need to drive the analysis of data relevant to warranty management, interface with internal and external stakeholders as well as their counterparts to resolve problems, and initiate improvement actions.

Divisional Teams are responsible for data collection; perform deep dive analysis of both corrective (reactive) & systemic (Proactive) initiatives and implement improvement changes suggested by vertical leads,

Setting up an effective Central Warranty management Department (CWMD) basis the best in class org structure described would benefit to a large extent.

Below is the graph from my previous blog use case; considered to show the quantum of change in cost per unit with and without the central warranty management department

Figure 2: Quantum of change in cost per unit with and without the central warranty management department

SeeClose detailed view

Tighter integration of warranty function using the proposed best-in-class organizational structure has led to faster detection of real quality issues, with more extensive analysis of warranty claims, resulting in an average of 12% reduction of CPU year over year, and an overall contribution of 5% to the reduction since inception.

Watch this space for more information on warranty. Next series will cover data requirements, readiness, and various types of analysis by divisions that can help drive warranty costs down faster. 

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