Unlocking the Value in Warranty Management


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With the right combination of advanced systems and processes around warranty management, manufacturers can unlock value such a reduced costs, improved product quality, faster turnaround and better customer experience.

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Unlocking the Value in Warranty Management

  1. 1. • Cognizant 20-20 InsightsUnlocking the Value inWarranty Management Executive Summary warranty management spend in the U.S. alone stands at $23 billion in 2011,2 and globally, this Manufacturers that offer a warranty on their number is estimated by industry pundits to be products are aware of the pitfalls of warranty closer to $70 billion. Given the magnitude of this management. Claims eat up a sizable percentage expense, manufacturers that offer warranties of annual revenue, and fraudulent claims are a have a great incentive to reduce associated perennial problem. Supplier recovery is not where expenses via warranty management systems and it should be, and each department involved in techniques. warranty is not necessarily aware of the practices followed by other departments. In addition, many Warranty management processes are subject to manufacturers do not have a system for capturing bottlenecks, errors and lack of visibility. These and archiving quality problem data to improve the issues are often attributable to a lack of integra- next generation of products. tion between departments and the resulting lack of informed decision-making due to an inability However, there is positive news, as leading to gain a holistic view of data across disparate research firms point out. With the right com- departments involved in the warranty lifecycle. bination of business processes and the latest On the positive side, manufacturers can only gain technology platforms, manufacturers can embark by optimizing their warranty value chains. At a on a path of steady improvement in warranty minimum, the potential benefits include reduced management practices. Additionally, as a recently costs, improved product quality, faster turnaround published warranty capability maturity model and better customer experience. explains, manufacturers can unlock even greater value by using advanced systems and processes Most companies begin the odyssey of warranty around unjustified claims management, supplier management optimization by automating the recovery and actionable warranty intelligence. transactional aspect of claims processing and payment. This is a natural starting place, as The Warranty Management automation can yield quick and easily quantifi- Opportunity able benefits. As an organization progresses in its For discrete product manufacturers, warranty approach to warranty management, it becomes management has traditionally been an unpal- possible to focus on higher value activities, such atable but unavoidable cost of doing business, as supplier recovery, early warning and claims ranging between 0.5% and 7% of revenues authenticity. annually, according to 2011 estimates.1 Total cognizant 20-20 insights | september 2011
  2. 2. Such enhanced warranty management practices Warranty Value Chain: Identifyingcan create market differentiation by helping Value Creation Opportunitiesto improve product quality, speed response to At each maturity level — even the early ones —potential issues and smooth leakage areas such there are actions that we believe manufacturingas unjustified claims and inadequate supplier organizations should undertake to create value.recovery. If executed effectively, these programsunlock value for the manufacturing organization The overarching goal of any warranty optimiza-and create a better customer experience (thus tion effort is to further business objectives suchimproving customer satisfaction). as improving customer expe- rience (and therefore reten-A Framework to Assess Warranty tion), reducing the cost of poor Organizations need toManagement Maturity quality and optimizing pro- use a structured valueAccording to IDC, manufacturers need a consistent cesses. However, the choice discovery approachand objective method for assessing their own of which particular area tolevel of warranty management maturity. Toward pursue requires careful con- to make accuratethat end, IDC developed the Capability Maturity sideration. Different focus investment decisions,Model (CMM), which spans five stages of warranty areas lead to different value- regardless of wheredevelopment, ranging from ad hoc (Stage 0) to creation opportunities, requir-optimized (Stage 4) (see box, below). Companies ing a holistic approach to they stand on aat the earlier stages of the CMM (Levels 0-2) are investment decision-making. warranty capabilityin reactive mode and are focused on warranty Organizations need to use a maturity model.transactions, while those that attain Levels 3 and structured value discovery4 are proactive and thus are able to pay more approach to make accurateattention to quality. investment decisions, regardless of where they stand on a warranty capability maturity model.Value Realized at CMM Levels 1 and 2Claims Processing Automation: Automobile ManufacturerWe developed a scalable and global claims processing platform for a leading automobile OEM that hadbeen struggling with a legacy system and many manual processes, resulting in poor claims processquality. The new claims processing platform has critical international features, including support formultiple languages and currencies. The new platform enabled the auto company to automate 90% of itsclaims processing compared with earlier manual processes and reduced human resource requirementsby more than 150%. Other benefits included real-time customer warranty claim processing, reducedlead time on the warranty claim lifecycle and improved claim information accuracy. The auto companyhas been able to improve warranty operations efficiency by eliminating duplicate system functional-ities and operations support, eliminating redundant IT support costs and reducing claim leakage byimproving accuracy.Point-of-Service Solution: Automobile ManufacturerA leading automotive company partnered with us to help with support and enhancements of a custom-built point-of-service application suite. These applications enable technicans to access them via portabledevices, with real-time access to the OEM’s systems for technical and enterprise quality information.Together, we generated annual cost savings of more than 30% in this multiyear, ongoing engagement,using the right mix of onsite/offshore resources. cognizant 20-20 insights 2
  3. 3. Actions to Take: CMM Levels 0-2 IDC’s Capability Maturity Model for At Level 0, manufacturers have just begun con- Warranty Management sidering how to establish warranty management processes. These organizations are currently Level Characteristics managing most warranty processes by exception rather than by standard business processes and Level 0 No automation; technology tools. Ad hoc transaction-based processes. Manufacturers at this level should consider taking Level 1 Established processes advantage of the latest advancements in warranty Standard- followed but best practices management processes and technology platforms. ized not captured. These organizations can start with a clean slate, so they can look at using the latest commercial Level 2 Connection made between products, making decisions Managed warranty and quality; initial At Levels 1 and on the platform to use and scalable most suitable and sharing of best practices. 2, companies also deploying cross-industry Level 3 Blended KPIs extending into should focus on warranty management best Integrated transactions, finance, quality, practices. improving warranty customer satisfaction. transaction Here, a structured approach Level 4 Warranty drives quality and to defining the warranty vision productivity and Optimized design improvement. and a firm implementation cost reduction. plan is the best way forward. Figure 1 While capturing the proverbial low-hanging fruit is an obvious starting point, organizations can start by deploying automated business process services to administer transac- • Claims processing. The basic system to tion-oriented claims processing. be implemented is a transactional claims processing system with the ability to limit errors At Levels 1 and 2, companies should focus on based on static rules. Organizations need to improving warranty transaction productivity work on establishing standard guidelines for and cost reduction. Here, there are important processing at least 80% of claims. Often, they decisions to be made relating to the technology, can and should engage a business process tools and processes that are needed to ensure services partner to handle both pre- and post- a scalable global warranty adjudication claims processing. At Levels 3 and 4, management platform. • Reverse logistics. Implementing a module for organizations need Broadly, objectives at these reverse logistics management is helpful. Orga- nizations should integrate disparate systemsactionable intelligence beginning levels are two-fold: to ensure seamless supplier parts mapping standardize and improve to improve functions basic structures while achiev- and automated parts request services. These outside of standard ing higher transactional effi- systems need to integrate with the supplier contract database for effective decision-mak- warranty operations. ciencies. Three focus areas ing in reverse logistics. Manufacturers should are worthy of attention: consider partnering with a business process • Point-of-service. The first steps in this area services provider to handle coordination include implementing a troubleshooting between different parties. system featuring technical solutions and the ability to look up failure reasons; integrating Actions to Take: CMM Levels 3-4 with device diagnostics and equipment his- At the higher levels of warranty management torical information; and engaging a business maturity, warranty becomes a visible function process services partner for Level 1 techni- across departments, with a real chance of cal support and logging of new issues into helping to improve the bottom line and stop an information repository. Also important: value “leakage.” At Levels 3 and 4, organizations real-time information exchange systems for need actionable intelligence to improve functions sharing field information. outside of standard warranty operations.
  4. 4. Companies at Levels 3 and 4 should undertake data spread across different departments, itthe following advanced activities to increase their is imperative that organizations take a morewarranty optimization benefits: holistic view of interpreting and converting this data into actionable intelligence for• Implementing advanced, dynamic claims reserve management, quality management authentication to identify claims with a and simulation of new warranty programs. high probability of being unjustified, thereby reducing the level of suspect claims. With Optimizing Warranty Process a typical rate of about 10% to 15% suspect Shortcomings claims, this represents an area for significant Our Warranty Value Discovery framework helps savings when coupled with a workflow solution manufacturing companies pinpoint their first for resolution and financial closure. steps in warranty optimization, along with a• Improving supplier recovery driven by cross- strategic roadmap for achieving the most value. functional integration to trace the parts The framework serves as a diagnostic assessment warranty to the appropriate supplier, estab- offering that determines existing gaps that need lishing accountability and allocating proper to be addressed, as well as key process areas that recoveries. Organizations are grappling with should be emphasized and how best to leverage the challenges of identifying the procurement existing investments. We kick off the process source. Weak supplier analytics often lead to a by providing a current state analysis and then half-hearted recovery process and substantial discuss those findings with decision makers. From write-offs. there, we deliver an opportunity analysis, which includes development of a strategic plan.• Establishing automated, predictive models for early warning to accurately capture We view your warranty chain holistically and offer emerging field failure patterns. Organizations services that address multiple areas for manufac- are now beginning to appreciate the insights turers at any stage of the warranty management that social media monitoring can provide in the CMM. For organizations seeking to tackle the context of parts failure and associated issues. “low-hanging fruit” of operational efficiencies, we The key is to couple unstructured customer offer a suite of claims processing business process feedback with predictive models to pinpoint services. For organizations seeking additional accurate issues, minimizing false positives. value from warranty management, we have con-• Deriving actionable intelligence. Most orga- ceptualized a solution to drive enterprise-wide nizations are dealing with the issue of “too benefits from warranty management. much data, too little intelligence.” With criticalValue Realized at CMM Levels 3 and 4Early-Warning System: Automobile ManufacturerWe worked with a leading automotive manufacturer to develop an early-warning module based ondifferent alarm evaluations logic with gradually increasing claims detection methods. The systemdetects 10% more quality alarms that are then taken up for investigation and counter-measure imple-mentation, with the potential for major cost avoidance. The system also provides rich features for claimsoccurrence trend analysis used in product quality-related decision-making processes.Intelligent Supplier Recovery: Automobile ManufacturerIn another engagement with the automotive OEM, we developed a supplier recovery module withautomated recovery calculators based on supplier cost-sharing contracts. The new system enabled asupplier claims recovery rate of 56% compared with the previous recovery rate of 30% to 40%. Thesystem also reduced recovery time by using workflows for acceptance and rejection of claims by thesupplier and the OEM personnel. cognizant 20-20 insights 4
  5. 5. Called WISARD (Warranty Information System Getting There from Herefor Analysis, Reporting and Decision-Making), Warranty claims currently cost manufacturers upour solution is process-centric and technology- to 7% of annual revenues, according to IDC. Theagnostic, allowing organizations to leverage consumer electronics, high-tech and telecommexisting investments in transactional systems. sectors suffer from particularly high annualThe solution assimilates data from disparate warranty costs, but high warranty expenses dosystems and analyzes the resulting data through not have to be a cost of doing business. The gooddifferent lenses, thereby addressing multiple news: Manufacturers canprocess breakdowns. obtain much value through implementation of warranty The system detectsKey aspects of the WISARD solution include: management best practices 10% more quality• Dynamic analysis to identify claims with a high and productized services. alarms that are probability of being fraudulent, leveraging our IP from similar scenarios in other industries. Automation claims process- then taken up for The engine is “self-learning,” thereby adapting ing is a natural starting investigation and to newer types of fraud and, at the same time, point for companies that are reducing false positives. beginning the warranty opti- counter-measure mization journey, and they implementation, with• Improved supplier recovery through an offer accelerated return on the potential for major integrated workflow solution. investment. For organiza-• Predictive analytics to identify early warning tions that have progressed cost avoidance. signals and cross-referencing with unstruc- further along the warranty tured customer feedback. management maturity model, however, the areas• Creation of intelligence from the ocean of of claims authentication, early warning and sup- data available within organizations through a plier recovery yield great returns. configurable “meta” model. We can help manufacturing organizations identify• Anytime, anywhere access, further reducing and implement value creation opportunities operating expenses for customers. This through a structured value discovery approach. provides the additional flexibility of adopting Additionally, our solution frameworks such as our solution in an on-premises or on-demand WISARD extend beyond transaction management model. to help manufacturers unlock their greatest warranty management potential.In addition, WISARD presents a good value prop-osition for manufacturing organizations, as itis designed to generate value from the get-go.WISARD can be used by manufacturing orga-nizations based on a value-sharing model thatrequires minimum upfront costs.Footnotes1 According to IDC Manufacturing Insights and SEC filings, 2011.2 “IDC Manufacturing Insights to Unveil Groundbreaking Warranty Management Capability Maturity Model at Annual Warranty Chain Management Conference,” IDC press release, March 9, 2011, http://www.idc.com/getdoc.jsp?containerId=prUS22734611 cognizant 20-20 insights 5
  6. 6. About the AuthorsJohn Hattery is the Segment Lead for Cognizant’s Automotive Business Consulting Practice. John has25 years of experience working at manufacturing and Tier-1 OEM automotive suppliers in manufacturingand supply chain management roles. He can be reached at John.Hattery@cognizant.com.Prasanth Thomas is a Senior Consulting Manager within Cognizant’s Automotive Business ConsultingPractice. His experience includes supply chain consulting, process design, after-market strategy andchange management. Prasanth can be reached at Prasanth.Thomas@cognizant.com.Imran Masood leads Cognizant’s Business Process Services Practice within the Manufacturing, Logisticsand Technology Business Units. He has worked with many Fortune 500 companies, helping them inthe areas of shared services setup, offshoring strategy and process innovation, with a special focus ontechnology-enabled global environments. Imran can reached at Imran.masood@cognizant.com.Gajanan Pujari is a Consulting Manager within Cognizant’s Automotive Business Consulting Practice. Hehas worked on various consulting assignments for major auto OEMs across the vehicle supply chain andservice engineering domain. He can be reached at Gajanan.Pujari@Cognizant.com.About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 118,000 employees as of June 30, 2011, Cognizant is a member of theNASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing andfastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: inquiry@cognizant.com Email: infouk@cognizant.com Email: inquiryindia@cognizant.com© Copyright 2011, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.