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Measuring and improving an effective and efficient warranty process

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John Hagen of Trane presented on measuring and improving an effective and efficient warranty process. Trane produces Commercial HVAC systems of every size. Warranty is tricky because they make everything so specific to customers.

Trane started a new quality initiative in 2004 because they felt that there were some low hanging fruit. They had warranty reserves that were set up in the 80s and no-one knew how they had been calculated. Found that they were under or over-reserved in various areas. They also focused on some major, systemic issues (coils, compressors etc) and as they dug into their claims it was clear they were still paying claims even though they had been focused on solving some of these problems for years. They found that a lot of their problems were misstated and the claims were wrong – for instance, because terms for paying for repairs were fixed and unfair, repairers were mis-reporting to get fair prices for the repair. Outdated policies were driving bad behavior and warranty/concession data was misleading.

In 2003 there was plenty of data but no information. Manufacturing spent a lot of time doing analysis, the supply chain lacked supplier failure data, engineering were missing key field failure information and although there was a focus on customers there were too few analytical measures. And IT systems were disjointed. to fix this they:

  • Identified 49 quality process elements across customer, sourcing, manufacturing and engineering.
  • Defined quality metrics for each of these and this allowed the various groups to specify what they needed to know from the warranty process.
  • Organized around regional quality leaders as well as functional quality leaders.

To manage demands from across the company, Trane has to balance the efficiency and effectiveness of the warranty process. Efficiency involves cost per transaction, early warning (cost per nugget of insight), parts return (cost per root cause). Effectiveness involves validity of claims, missed/over-started problems or incorrect root causes. While they want to replace the warranty management system, for now they have added analytics onto their old system.

Of the 16 steps they found in the warranty process, they focused on process planning, concession claims analysis, reserve and expense planning, returns process, returns policy, customer feedback, field service information capture and product support capture and analysis. Working on these areas has helped them drive down warranty and concession costs from 3.3% to 2.2% (with 2.0% targeted for this year and perhaps 1.5% next year).

Compared with 2003 they have made a lot of progress. Quality and early warning integrated into the customer process, clear reliability and quality goals for engineering, manufacturing is managing time to detect and correct and the supply chain is focused on routine recovery and supplier quality. From an IT perspective they are adding text analytics and automated claims.

Their experience is that warranty and warranty claims are a key part of improving quality. And with a 60% turnover in models in the next 12 months (resulting from new refigerant rules) quality and early detection are going to be more critical than ever. Lessons Learned:

  • Use claims to identify quality issues
  • Start with vendor recovery quickly
  • Define management metrics by functiona and track them
  • Improve communication in both directions and keep the customer in mind

Don’t forget to check out the white paper I have at decisionmanagementsolutions.com/warranty

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