white paper warranty_management

L&T Infotech Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty of 15

Abstract .................................................................................... 2 Current Warranty Scenario .............................................................. 3 Warranty Drivers .......................................................................... 4 Impact of Warranty across the entire value chain & eco system - L&T Infotech‟s perspective: ................................................................................ 6 Warranty Maturity Model ................................................................. 8 Challenges to achieve high level of maturity in warranty management .......... 9 L&T Infotech‟s approach: “Integrated Warranty Management” ................... 10 Extracting value from FRACAS to drive actionable intelligence ................... 11 Enabling FRACAS ......................................................................... 12 Conclusion ................................................................................. 13 References ................................................................................ 14 About the Author ......................................................................... 15 About L&T Infotech ...................................................................... 15

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Failure Reporting Analysis Corrective Action System for driving actionable intelligence out of warranty

A U T H O R : S a c h i n K u l k a r n i & D u r g a G h a t e


Abstract

While engaging in Warranty initiatives within the supply chain domain, L&T Infotech has come across a number of manufacturers who seek to derive actionable intelligence out of warranty and leverage it within product development processes which run across organizational functions viz: field service, manufacturing, quality, and marketing & engineering.

However, the absence of an integrated solution which is built on top of comprehensive reliability engineering database restricts organizations‟ ability to implement a close loop feedback across the value chain thereby limit chances of reducing overall warranty costs and “Occurrence to Awareness” cycle time while ensuring regulatory compliances.

This paper presents an approach on how to build a “FRACAS” & leverage it in CAPA (Corrective and Preventive Action) and continuous improvement programs.


Current Warranty Scenario

Traditionally, warranty expense has been regarded as a cost of doing business & liability, and its magnitude has been rising as indicated by the following warranty statistics:

U.S. manufacturers spend over $25 billion every year on product warranty claims. (Source: IDC)

Warranty costs in the automotive industry exceed $9 billion per year in the U.S.

In 2010, the total amount of warranty accruals reported by all U.S. based warranty providers grew by 6.5 % to $22.8 billion, while the amount of claims paid fell by 7.5% to $23.6 billion. (Source: Warranty Week)

Best-run companies, however, have learned how to leverage warranty management as a significant source of cost competitiveness. L&T Infotech‟s research and experience demonstrates manufacturing organizations that have mastered the discipline of warranty management; not only by reducing costs but also sustaining competitive pressure, being compliant with regulations and enhancing the brand image. L&T Infotech has observed leaders are able to convert warranty as liability to competitive advantage.


Warranty Drivers

L&T Infotech has observed following key drivers to warranty:

Cost: High warranty accruals are the burden on working capital & on top of it low or no supplier recovery is also a key concern.

Technology: Products are equipped with telematics, mechatronics & features that handle time-to-time monitoring and keep watch on “in-use” performance of products.

Brand Image: Higher warranty means higher perceived quality in the minds of consumers.

Competitive Pressure: Increased pressure to publish warranty data & claim index which has significant impact on perceived product quality & brand image.

Regulatory Compliances: Compliance pressures like Sarbanes-Oxley are creating pressure on manufacturers to better manage their product quality. The Securities and Exchange Commission (SEC) has recently mandated that manufacturers need to accurately reserve and account for warranty reserves on the balance sheet. Compliance with the SEC would also require manufacturers to fully understand product and process quality across their extended enterprise partners.


Warranty Claim Costs - One of the Key Drivers: All manufacturers feel the pain of warranty costs to a large extent & we have observed the following warranty costs related trends:

Ever-rising product complexity increases the number of potential problems with the product.

Heightened expectations from consumers, who expect higher product performance, exert additional pressures on companies to provide robust after-sale services.

Decreasing product lifecycles are forcing companies to introduce more reliable products

L&T Infotech has observed that, while considering warranty management, cost is important and different stakeholders have different interests in this respect as listed below:

Warranty as lever to improve sales: Sales & marketing stakeholders look at the length & breadth of the warranty program to generate incremental revenue & offer extended warranties.

Product reliability & maintainability: Within manufacturing factory warranty programs are influenced by higher cost of quality due to design for quality, quality assurance in manufacturing & supplier parts quality.

Service delivery: After-sales service delivery is highly influenced by warranty aspects like replacement, return logistics, repair and retro-fitment.


We have observed the following typical warranty cost patterns in which major cost is covered by repairs and logistics followed by actual replacement parts which are claimed:

Impact of Warranty across the entire value chain & eco system - L&T

Infotech’s perspective:

Warranty is often considered as an after-sales activity. However, it is very essential to look at it as comprehensively as possible, and as a matter of fact, it is not as tightly linked to after sales as believed. The warranty feedback drives continuous improvement programs across organizational functions and departments.

This intelligence, in terms of feedback, if appropriately captured & shared with stakeholders in a timely manner, can add value in improving overall product quality and reducing warranty costs, and thereby enhancing product quality.


The diagram below demonstrates the relevance of warranty feedback to various stakeholders across the value chain:

The warranty feedback is critical not only for the internal organizational functions but also important for extended partners within the eco system. The diagram below demonstrates the same:


Warranty Maturity Model

Organizations‟ ability to leverage warranty intelligence through strong feedback mechanism & their ability to drive continuous improvement programs, determines their “Maturity Level”

“According to Sheila Brennan (IDC Manufacturing Insights), "Organizations do not have a

formal structured framework to conduct relevant assessment and implement a continuous improvement program. The Warranty Management Capability Maturity Model we have developed can help companies begin an improvement journey and provide insight into what to measure, what to invest in, and how to organize, in order to improve their warranty

operation.”


Challenges to achieve high level of maturity in warranty management

L&T Infotech has presented below typical reason as to why organizations are not able to achieve high level of maturity per IDC‟s maturity model & why they are not able to leverage “Warranty as a competitive advantage” .These challenges can be broadly classified as technological and process inefficiencies, and organizational silos:

Technological challenges: Many a time we have observed standalone warranty systems rather than they being integrated with peripheral systems (PDM & ERP, DBM, etc.). In such a scenario, building a comprehensive warranty database becomes difficult since warranty IT applications and databases for quality, reliability, and sales & production are disparate.

Process inefficiencies: Inefficiencies in some processes like vendor recovery, extended warranties, factory campaigns, CAPA activities and diagnostics through web feeds, etc.

Organizational silos: Lack of a closed-loop feedback to design, engineering, and quality is restricting organizations to drive CAPA and improvement program which negatively impacts the “Occurrence to Awareness Cycle” time.

In fact, warranty management remains an uncharted territory for many organizations as they struggle to understand, communicate and analyze their warranty performance. This situation is exacerbated by the lack of business intelligence systems and a maturity framework.


L&T Infotech’s approach: “Integrated Warranty Management”

L&T Infotech believes the right approach to warranty management is through an integrated solution as demonstrated below which will enable Failure Reporting Corrective Action System (FRACAS)

It is imperative to integrate WM solutions with other peripheral systems to build Failure Reporting Analysis and Corrective Action System (FRACAS).


Extracting value from FRACAS to drive actionable intelligence

FRACAS: FRACAS is a closed-loop feedback mechanism to help the OEM & supplier to collect record

and analyze failures of parts received from warranty claims data.

It will provide timely feedback to engineering & product design, and supply chain & quality teams to drive CAPA & continuous improvements.

It will help improve communication and collaboration within the whole eco system, between internal stakeholders and OEM, & its suppliers.

It will help address one of the top concerns, “high NTF (No Trouble Found),” by allowing proper root cause analysis and thereby helping establish accountability for defects.

It will make the entire claims management process transparent & responsive.


Enabling FRACAS

Though warranty systems with ERP-led or point solutions are fully automated & are good at

managing claims and other processes, they tend to underperform when it comes to enabling stakeholders to translate warranty & quality data into actionable insights by identifying key factors that give rise to claims. The primary reason to this is the complexity involved in having disparate systems & databases to manage warranty claims & diagnostics. FRACAS would need to integrate various IT applications involved in handling warranty processes, and gradually set up a comprehensive reliability database. All trend analysis, root cause analysis, close loop feedback to quality, design, manufacturing & sales, will be built on top of it.


L&T Infotech has envisioned that typical FRACAS will deliver following intelligence in terms of dashboards:

Conclusion

Manufacturing organizations invest a lot in warranty initiatives. Such initiatives are aimed at improving collaboration with internal and external stakeholders, warranty accrual reserve management, fraud detection, extended warranty programs & establishing an Early Warning System (EWS). These aspects of warranty influence not only the cost but also the brand image and regulatory compliance related issues.

Manufacturing organizations need to look at the warranty holistically, and an integrated approach to managing warranty processes would be necessary to ensure success of such initiatives.

Organizations‟ ability to derive intelligence out of warranty claims and share this as a real-time feedback with various stake holders across the entire value chain will help them achieve the next level of maturity per IDC‟s maturity model. This will also help them drive their continuous improvement and CAPA programs to reduce “defect occurrence to awareness cycle time”.

“Failure Reporting Corrective Action System (FRACAS)” is built on the foundation of a consolidated and comprehensive reliability engineering database. This makes the entire warranty system as well as the processes transparent, agile and proactive. Warranty is not just about efficiently managing field claims; it is about continuous learning and ongoing discovery of how consumers are making use of products and what is their perception of product quality.

A typical FRACAS will help integrate people, processes and material, and establish a robust collaboration platform, and hence, will be imperative to improve overall product development processes.


Abbreviations and Acronyms FRACAS Failure Reporting Analysis & Corrective Action System

OEM Original Equipment Manufacturer

MOS Manufacturing Operation Sheet

KPI Key Performance Indicator

ROI Return on Investment

PFMEA Process Failure Modes Effects Analysis

DFMEA Design Failure Modes Effects Analysis

CAPA Corrective Action Preventive Action

YTD Year Till date

CoE Centre of Excellence

ECM Engineering Change Management

References

IDC www.idc.com

Warranty week www.warrantyweek.com


About the Author

Sachin Kulkarni leads the Manufacturing industry solutions group at Larsen & Toubro Infotech Ltd. He has over 15 years of industry and consulting experience in new product development and supply chain management domains. He has worked in India, North America, Europe and South East Asia in automotive and industrial product companies. Sachin has a BE in Mechanical Engineering with an MBA in marketing. In addition to this, he is a Certified

Supply Chain Professional (CSCP) from American Production & Inventory Control (APICS) and Qualified Project Management Professional (QPMP).

Durga Ghate has 8 years of IT experience in Larsen & Toubro Infotech Ltd. She has been working in the Manufacturing practice & leads the Warranty CoE. She has worked in India, Australia and Europe. Durga holds a BE degree in Electronics Engineering.

About L&T Infotech

L&T Infotech is a wholly-owned subsidiary of the multi-billion USD, Larsen & Toubro, India‟s „Best Managed Company‟ with presence in construction, and engineering, manufacturing and financial services. One of the fastest growing IT Services companies, L&T Infotech is ranked by NASSCOM as the 9th largest software & services exporter from India and among the top 20 IT BPO Employers in 2010-2011. L&T Infotech provides end-to-end solutions and services in the following verticals: Banking & Financial Services; Insurance; Energy & Petrochemicals, Manufacturing (CPG/retail, high-tech, industrial products, automotive), and Product Engineering Services (Telecom). L&T Infotech is also well positioned in the Media & Entertainment; and Life sciences & Healthcare space. L&T Infotech‟s horizon is filled with the promise of new and cutting edge offerings in the technology space including an end-to-end cloud computing adoption toolkit and cloud advisory consulting services; enterprise mobility solutions covering a smart access platform; big data advisory services; and in-memory computing. L&T Infotech has developed intellectual properties (IPs) in all the vertical and horizontal service lines and leverages them to provide IP-led solutions. L&T Infotech also delivers business solutions to its clients in the following horizontals/service lines: SAP; Oracle; infrastructure management services; application outsourcing (testing; application development, maintenance & support; legacy modernization; BI/DW); domain services; architecture consulting; EAI & SI; service oriented architecture; software as a service (SaaS); and product lifecycle management. Moreover, an innovative CIO-thought partnership program provides a value-driven edge to clients. For more information, visit us at www.Lntinfotech.com or email us at [email protected]

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