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White paper warranty_management
 

White paper warranty_management

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FAILURE REPORTING ANALYSIS CORRECTIVE ACTION SYSTEM (FRACAS) FOR DRIVING ACTIONABLE INTELLIGENCE OUT OF WARRANTY by L&T Infotech

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    White paper warranty_management White paper warranty_management Document Transcript

    • AUTHOR: Sachin Kulkarni & Durga Ghate F ailure R eporting A nalysis C orrective A ction S ystem for driving actionable intelligence out of warrantycontents 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 L&T Infotech Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty Page 1 of 15
    • AbstractWhile engaging in Warranty initiatives within the supply chain domain, L&T Infotech has comeacross a number of manufacturers who seek to derive actionable intelligence out of warrantyand leverage it within product development processes which run across organizationalfunctions viz: field service, manufacturing, quality, and marketing & engineering.However, the absence of an integrated solution which is built on top of comprehensivereliability engineering database restricts organizations‟ ability to implement a close loopfeedback 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.L&T Infotech Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty Page 2 of 15
    • Current Warranty ScenarioTraditionally, warranty expense has been regarded as a cost of doing business & liability, andits 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 asignificant source of cost competitiveness. L&T Infotech‟s research and experiencedemonstrates manufacturing organizations that have mastered the discipline of warrantymanagement; not only by reducing costs but also sustaining competitive pressure, beingcompliant with regulations and enhancing the brand image. L&T Infotech has observedleaders are able to convert warranty as liability to competitive advantage.L&T Infotech Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty Page 3 of 15
    • Warranty DriversL&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 nosupplier recovery is also a key concern.Technology: Products are equipped with telematics, mechatronics & features that handletime-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 hassignificant impact on perceived product quality & brand image.Regulatory Compliances: Compliance pressures like Sarbanes-Oxley are creating pressure onmanufacturers to better manage their product quality. The Securities and ExchangeCommission (SEC) has recently mandated that manufacturers need to accurately reserve andaccount for warranty reserves on the balance sheet. Compliance with the SEC would alsorequire manufacturers to fully understand product and process quality across their extendedenterprise partners.L&T Infotech Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty Page 4 of 15
    • Warranty Claim Costs - One of the Key Drivers:All manufacturers feel the pain of warranty costs to a large extent & we have observed thefollowing 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 productsL&T Infotech has observed that, while considering warranty management, cost is importantand 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.L&T Infotech Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty Page 5 of 15
    • We have observed the following typical warranty cost patterns in which major cost is coveredby repairs and logistics followed by actual replacement parts which are claimed:Impact of Warranty across the entire value chain & eco system - L&TInfotech’s perspective:Warranty is often considered as an after-sales activity. However, it is very essential to look atit as comprehensively as possible, and as a matter of fact, it is not as tightly linked to aftersales as believed. The warranty feedback drives continuous improvement programs acrossorganizational functions and departments.This intelligence, in terms of feedback, if appropriately captured & shared with stakeholdersin a timely manner, can add value in improving overall product quality and reducing warrantycosts, and thereby enhancing product quality.L&T Infotech Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty Page 6 of 15
    • The diagram below demonstrates the relevance of warranty feedback to various stakeholdersacross the value chain: The warranty feedback is critical not only for the internal organizational functions but alsoimportant for extended partners within the eco system. The diagram below demonstrates thesame:L&T Infotech Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty Page 7 of 15
    • Warranty Maturity ModelOrganizations‟ 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 aformal structured framework to conduct relevant assessment and implement a continuousimprovement program. The Warranty Management Capability Maturity Model we havedeveloped can help companies begin an improvement journey and provide insight into what tomeasure, what to invest in, and how to organize, in order to improve their warrantyoperation.”L&T Infotech Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty Page 8 of 15
    • Challenges to achieve high level of maturity in warranty managementL&T Infotech has presented below typical reason as to why organizations are not able toachieve 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 astechnological and process inefficiencies, and organizational silos:Technological challenges: Many a time we have observed standalone warranty systems ratherthan they being integrated with peripheral systems (PDM & ERP, DBM, etc.). In such ascenario, building a comprehensive warranty database becomes difficult since warranty ITapplications and databases for quality, reliability, and sales & production are disparate.Process inefficiencies: Inefficiencies in some processes like vendor recovery, extendedwarranties, factory campaigns, CAPA activities and diagnostics through web feeds, etc.Organizational silos: Lack of a closed-loop feedback to design, engineering, and quality isrestricting organizations to drive CAPA and improvement program which negatively impactsthe “Occurrence to Awareness Cycle” time.In fact, warranty management remains an uncharted territory for many organizations as theystruggle to understand, communicate and analyze their warranty performance. This situationis exacerbated by the lack of business intelligence systems and a maturity framework.L&T Infotech Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty Page 9 of 15
    • L&T Infotech’s approach: “Integrated Warranty Management”L&T Infotech believes the right approach to warranty management is through an integratedsolution 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 FailureReporting Analysis and Corrective Action System (FRACAS).L&T Infotech Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty Page 10 of 15
    • Extracting value from FRACAS to drive actionable intelligenceFRACAS: 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.L&T Infotech Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty Page 11 of 15
    • Enabling FRACASThough warranty systems with ERP-led or point solutions are fully automated & are good atmanaging claims and other processes, they tend to underperform when it comes to enablingstakeholders to translate warranty & quality data into actionable insights by identifyingkey factors that give rise to claims. The primary reason to this is the complexity involvedin having disparate systems & databases to manage warranty claims & diagnostics. FRACASwould need to integrate various IT applications involved in handling warranty processes, andgradually 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 Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty Page 12 of 15
    • L&T Infotech has envisioned that typical FRACAS will deliver following intelligence in terms ofdashboards:ConclusionManufacturing organizations invest a lot in warranty initiatives. Such initiatives are aimed atimproving collaboration with internal and external stakeholders, warranty accrual reservemanagement, fraud detection, extended warranty programs & establishing an Early WarningSystem (EWS). These aspects of warranty influence not only the cost but also the brand imageand regulatory compliance related issues.Manufacturing organizations need to look at the warranty holistically, and an integratedapproach to managing warranty processes would be necessary to ensure success of suchinitiatives.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 achievethe next level of maturity per IDC‟s maturity model. This will also help them drive theircontinuous improvement and CAPA programs to reduce “defect occurrence to awarenesscycle time”.“Failure Reporting Corrective Action System (FRACAS)” is built on the foundation of aconsolidated and comprehensive reliability engineering database. This makes the entirewarranty system as well as the processes transparent, agile and proactive. Warranty is notjust about efficiently managing field claims; it is about continuous learning and ongoingdiscovery of how consumers are making use of products and what is their perception ofproduct quality.A typical FRACAS will help integrate people, processes and material, and establish a robustcollaboration platform, and hence, will be imperative to improve overall productdevelopment processes.L&T Infotech Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty Page 13 of 15
    • 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 ManagementReferences IDC www.idc.com Warranty week www.warrantyweek.comL&T Infotech Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty Page 14 of 15
    • 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 CertifiedSupply Chain Professional (CSCP) from American Production & Inventory Control (APICS) andQualified 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 InfotechL&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 Servicescompanies, L&T Infotech is ranked by NASSCOM as the 9th largest software & servicesexporter from India and among the top 20 IT BPO Employers in 2010-2011. L&TInfotech 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; andLife sciences & Healthcare space.L&T Infotech‟s horizon is filled with the promise of new and cutting edge offerings inthe technology space including an end-to-end cloud computing adoption toolkit andcloud advisory consulting services; enterprise mobility solutions covering a smartaccess platform; big data advisory services; and in-memory computing. L&T Infotechhas developed intellectual properties (IPs) in all the vertical and horizontal servicelines and leverages them to provide IP-led solutions.L&T Infotech also delivers business solutions to its clients in the following horizontals/servicelines: SAP; Oracle; infrastructure management services; application outsourcing (testing;application development, maintenance & support; legacy modernization; BI/DW); domainservices; architecture consulting; EAI & SI; service oriented architecture; software as aservice (SaaS); and product lifecycle management. Moreover, an innovative CIO-thoughtpartnership program provides a value-driven edge to clients.For more information, visit us at www.Lntinfotech.com or email us at info@Lntinfotech.comFollow L&T Infotech on:L&T Infotech Proprietary Failure Reporting Analysis Corrective Action System for Driving Actionable Intelligence out of Warranty Page 15 of 15