Captstone Project Tm699 By Craig Jones Final Draft
Caterpillar New Warranty Expense Project
College of Information Technology and Engineering
M.S. in Technology Management with emphasis in Manufacturing Systems
135 Caroline Circle
Hurricane, WV 25526
Advisor: Dr. Eldon Larsen
The New Caterpillar Warranty Expense Project focuses on reducing warranty
expenses for Walker Machinery, a Caterpillar heavy machinery dealer. The problem
statement for the project is as follows: Reducing warranty expense without compromising
customer satisfaction will have a material impact on improving Walker Machinery profit
after direct expenses. Warranty expenses have been trending upward since 1997 and
reached $X million dollars year-end 2006. Annualizing January 2007 month end expenses
indicates the upward trend will continue. The large amount of warranty residual dollars
indicates that new process with greater financial accountability is needed.
The key issues to be addressed that affect warranty expense were warranty
administration, warranty residuals, warranty premiums, warranty selection, Caterpillar
machine quality, and warranty accounting.
The problem was addressed using 6 Sigma DMAIC (Define, Measure, Analyze,
Improve and Control) methodology. 6 Sigma is a process improvement methodology that
focuses improving processes to meet critical business and customer requirements. Using
DMAIC, a business problem is translated into a statistical problem. A statistical solution is
formulated and then translated into a business solution.
The lack of continuous data in a transactional business often reduces the capacity in
which statistics can be used to arrive at business solutions. However, in the case of
warranty expense, continuous data is available from years of warranty invoices, claims, and
The results proved that while warranty expense was not the alarming problem that
we originally believed it to be, there was still much room for improvement, as there usually
is with any business process.
Recommendations for improvements fall largely into two categories: training and
reporting. Training improvements focus on consistent processes for warranty
administration across the company’s 8 branches. Processes were drawn on to-be process
maps and standard operating procedures were written and posted on the company
intranet. The scope of the training includes all service and sales personnel at all 8 branches.
Recommendations for reporting improvements focus on aligning expenses and
revenues using an accrued liability method of accounting. Prior to the project, warranty
was accounted for on a cash basis. Other mentionable recommendations for reporting
include a cost/benefit analysis of warranty to aid in extended warranty selection.
Evaluating the success of this project will not be possible until training has been
completed and all reporting recommendations executed. Upon implementation of all
recommendations, data will be collected for a 6-month period and compared to historical
control data. Evaluation results will be stated as a percentage of machine list price, in order
to compensate for inflation.
I believe that this was a very necessary and worthwhile project. I expect significant
and sustainable savings.
Key words: 6 Sigma, Six Sigma, DMAIC, Caterpillar, warranty, accrued liability, training,
Thanks be to God for the many blessings he has bestowed upon me. With God, all
things are possible.
I would like to thank Dr. Eldon Larsen for mentoring me throughout my master’s
studies. Dr. Larsen was consistently there for me professionally and personally. I am a
more effective 6 Sigma Black Belt because of Dr. Larsen’s council and instruction.
I would like to thank my wife, Shenan Jones, for her patience, support, and extra
time spent caring for our family and home while I have been away at work, school, and 6
I would like to thank my parents, Bob and Doris Jones, for instilling in me the value
of education. I would not have been able to attain my undergraduate degree without their
persistence and financial support. I would also like to thank my parents for raising me in a
loving, Christian home.
I would like to thank Walker Machinery for believing in me enough to award me a
scholarship to pay for my graduate education expenses. I appreciate their generosity and
investment in my personal and career development.
TABLE OF CONTENTS
Conclusions and Recommendations……………………………………………………………………………..37
Appendix A: Project Charter………………………………………………………………………………40
Appendix B: DMAIC Project Plan………………………………………………………………………..41
Appendix C: Stakeholder Summary/Communications Plan………………………………..42
Appendix D: Voice of the Customer……………………………………………………………………43
Appendix E: Voice of the Business………………………………………………………………………44
Appendix F: Sales Department As-Is Process Map………………………………………………45
Appendix G: Service Department As-Is Process Map………………………………………….46
Appendix H: Suppliers, Inputs, Process, Outputs, and Customers (SIPOC)………….47
Appendix I: Measurement Plan…………………………………………………………………………..48
Appendix J: Service Repair Work Order Form……………………………………………………..49
Appendix K: Fishbone Diagram…………………………………………………………………………..50
Appendix L: Root Cause Ranking…………………………………………………………………………51
Appendix M: Sales Department To-Be Process Map…………………………………………...54
Appendix N: Service Department To-Be Process Map………………………………………....55
Appendix O: Improvement Implementation Project Plan…………………………………….56
Walker Machinery is a Caterpillar heavy machine dealer, servicing most of West
Virginia and portions of Southern Ohio, catering mostly to surface mining coal companies.
As a Caterpillar dealer, Walker Machinery is obligated to provide its customers with
warranty service as outlined by Caterpillar warranty guidelines. Walker Machinery files
claims with Caterpillar for reimbursement for warranty service, but Caterpillar does not
reimburse 100% of Walker Machinery’s expenses. For the purposes of this paper, warranty
expense is defined as the difference between Walker Machinery’s actual expenses and what
Caterpillar will reimburse plus the cost of extended premium enrollments.
Caterpillar warranty guidelines obligate the dealer to perform repairs that are a
result of defects in parts or workmanship for a period of 6 to 12 months, depending on the
family of machine. Caterpillar will reimburse the dealer for parts, but the dealer is
responsible for associated labor expenses, with the exception of safety-related updates,
predelivery, and set-up. Caterpillar does not reimburse the dealer for travel time and
mileage expenses. Caterpillar warranty guidelines do not specifically state that the dealer is
responsible for travel time and mileage expenses, but Walker Machinery elects to absorb
travel time and mileage expenses under the standard warranty period to be competitive
with rival machine manufacturers.
Warranty expenses have a direct correlation to new machine sales. Because of the
cyclical nature of the coal business, warranty expense varies significantly from year to year.
Because Walker Machinery realizes warranty expenses on a cash basis, warranty expenses
and new machine sales revenues are not proportionally aligned in a given accounting
period. For example, going into a new machine sales trough after two years of record
machine sales will greatly exaggerate warranty expense as a percentage of new machine
sales. The generally accepted accounting principles (GAAP) for warranty state that warranty
expenses should be accrued in the same accounting period as sales revenue. For example, a
machine is sold for $1M and warranty expenses are estimated at $10,000. In the same
accounting period, the Sales Department warranty expense account should be debited
$10,000 and an accrued liability account should be credited $10,000 to cover future
warranty expenses. Walker Machinery has not conformed to this principle because they did
not have a reliable means of estimating warranty liabilities.
Warranty work orders are invoiced by Walker Machinery’s Service Department. The
Warranty Department files warranty claims with Caterpillar. Warranty expense is debited
as a direct expense to the Sales Department’s operating statement. The Sales Department
feels that warranty expense is higher than it should be because of lack of warranty expense
management and accountability. The foundation of this argument is that the Sales
Department absorbs the costs of warranty expense but does not have control over
managing the departments that administer warranty repairs and warranty claims. The Sales
Department suggests that the Service Department does not manage warranty work orders
as closely as they do revenue work orders. The Sales Department would like to pay the
Service Department a flat-rate amount to cover all warranty expenses when a new machine
is sold so that the management of warranty expense is under the control of the department
that manages warranty repairs and claims.
In order to validate the suggestion of the sales department that warranty work
orders and revenue work orders are treated differently, I performed an analysis of variance
to compare warranty and revenue work order totals to remove and install an engine on a
D11 track-type tractor. The null hypothesis (Ho) was that warranty work orders and
revenue work orders are treated the same. The alternative hypothesis (Ha ) was that
warranty work order and revenue work orders are treated differently. While the mean
warranty work order was 5% more than a revenue job, the analysis returned a P value of
0.679, thus suggesting to accept the null hypothesis that warranty work orders and revenue
work orders are treated the same. A visual representation of warranty versus revenue
hours indicates that the work orders are treated similarly (see Figure 1).
Boxplot of HOURS by WO
Warranty expense is a difficult project because it touches so many key business
areas in the company: sales, service, warranty, and accounting. Walker Machinery has
considered changing the manner in which warranty expense is administered and accounted
for in the past, but plans have never come to fruition. Early drafts of the project charter
were scoped around merely converting to accrued liability, but the project was later scoped
to include decreasing warranty expense overall. The hope was that 6 Sigma could take a
global project such as warranty expense and achieve something that could not be done by
Warranty expense is not an issue that is unique to Walker Machinery. Most
Caterpillar dealers have conducted 6 Sigma warranty expense projects. Caterpillar has
developed an online knowledge network for dealers to share their project findings,
improvements, and results. I found several useful Knowledge Network entries on the topic
of warranty expense. I discovered a Black Belt from South Carolina, Lee Rafford, who was
working on a similar warranty expense project. I knew Rafford from 6 Sigma Black Belt
training and regional Caterpillar dealer meetings. We have contacted each other several
times by phone and email to compare ideas, findings, and frustrations.
I referenced Caterpillar 6 Sigma training materials to ensure that I was following the
Caterpillar 6 Sigma recipe throughout the project. Caterpillar provides Black Belts all 6
Sigma training presentations, examples, and problems on a CD-ROM called Virtual Coach.
Virtual Coach also includes Green Belt training presentations for just-in-time project team
training. Black Belts conduct all Green Belt project team training at Walker Machinery.
Details on generally accepted accounting principles (GAAP) for warranty were
researched at the Federal Accounting Standards Advisory Board’s website (FASAB) and
Historical data was extracted from Walker Machinery’s AS400 based Dealer Business
System (DBS) using Sequel for AS400 (SQL). Walker Machinery has been using DBS since
1999. DBS contains all warranty invoices, claim amounts, and settlement amounts for all
warranty work orders performed since the conversion to DBS in 1999. SQL queries were
coded by Robert Packtor, Information Services AS400 Manager and Yellow Belt, Blake Lilly,
Warranty Manager and Green Belt, and me.
Practical data analysis was performed using Microsoft Excel. I examined any blank
entries or outliers, looking for special cause. I validated the SQL download data with DBS
user interface data. I also validated the SQL download data with a third-party designed
Microsoft Access Walker Machinery warranty database.
Graphical data analysis was performed using Minitab. Minitab is a powerful
statistical analysis tool that makes constructing detailed graphs very easy. I created many
useful Pareto charts, bar charts, and boxplots using Minitab for this project.
Analytical data analysis was also performed using Minitab. Minitab can handle
everything from simple linear regression to Taguchi designs of experiments. I used Minitab
to calculate means, medians, and perform an analysis of variance (ANOVA).
Qualitative data was gathered by interviewing key sales, service, warranty, and
accounting personnel who work the warranty process on a daily basis. Interviews and team
meetings were translated into the voice of the customer (VOC), voice of the business (VOB),
as-is process maps, fishbone diagram, and to-be process maps.
As with any 6 Sigma project, the team began by defining the problem. Very
succinctly, the problem was that the company was spending too much money on warranty;
in 2006, we spent over $X. The project charter detailed the business case, opportunity
statement (or problem statement), goal statement, project scope, project plan, and team
Project Charter (see Appendix A): The Project Charter is referred to as a “living
document” because it is often changed and updated during the early stages of the project.
It is better to make broad changes to the Project Charter early in the project. The Project
Charter is the document that defines the problem, scope, and the goals of the project.
The Business Case was as follows: Walker Machinery Co. currently incurs significant
costs in warranty that impact the direct expense lines of the Sales Department operating
statement. Growth of machine deliveries over the last few years means these costs will
continue for the next two to three years. These costs will also roll into years of lower
projected unit sales pushing warranty and policy expense higher as a percentage of current
The Opportunity Statement was as follows: Reducing warranty expense
without compromising customer satisfaction will have a material impact on
improving Walker Machinery’s profit after direct expenses. Warranty expenses have
been trending upward since 1997 and reached $X by year-end 2006. Annualizing
January 2007 month end expenses indicates the upward trend will continue. The
large amount of warranty residual dollars indicates that new process with greater
financial accountability is needed.
The goal statement identified the following key areas that contribute to warranty
1. Warranty administration: from the first call to the service department from the
2. Warranty residual: the difference between actual warranty invoices less
reimbursement from Caterpillar.
3. Warranty premiums, defined as the expense of extended warranty enrollment to
4. Warranty selection and coverage, to ensure that our customers and our Rental
Services department are determining when it would be best to self-insure and
which extended coverage to purchase when insuring with Caterpillar.
5. Caterpillar machine quality, while outside of our direct control, could reduce
warranty expense if problems could be detected early, communicated
throughout the company, and quality issues mitigated or eliminated before the
machine fails in the field.
6. Warranty accounting was also identified as a key area, not because it was
believed to be able to save money in and of itself, but because there was a clear
opportunity to better match the company’s revenues and expenses by
recognizing the total expense of the warranty at the time of sale, or enrollment
in to rental fleet by converting from a cash-basis method of accounting to an
accrued liability method of accounting.
Project Scope: The project was originally scoped to include the entire $X of
warranty expense, including every warranty expense account across every business division.
New Caterpillar machine warranty expenses were broken down into 12 different accounts
across 3 divisions: Machinery, Rental and Engine. By constructing a Pareto chart, it was
evident that nearly 80% of warranty expense was being charged to 2 accounts, new
Caterpillar extended warranty and new Caterpillar warranty, respectively (see Figure 2).
Both of these accounts belong to our Machinery division. The project sponsor agreed to
scope the project to include only these 2 accounts.
Pareto Chart of New CAT Warranty Dollars by Account
Account T L er
EX C AT PS
T Y Y W T O
W T T
CA NE AN AN NE CA
W TY R RR TY ED
NE AN AR A AN US
Y W W R
T R TY
AN AR AR AN
R W W R
Percent 50.0 29.7 9.4 3.3 2.5 1.9 3.2
Cum % 50.0 79.6 89.1 92.4 94.9 96.8 100.0
Project Plan (see Appendix B): The project was officially kicked off on April 30th,
2007. An aggressive timeline was set and the project was targeted for completion by
August 8th, 2007. Although an aggressive timeline is set for every Walker Machinery 6
Sigma Project, time is usually the most flexible of the triple constraints; there are few
managers who will actually allow their appointed Green Belts to devote 20% of their time to
a project, as the Caterpillar 6 Sigma recipe suggests. It is our primary goal for every project
to have breakaway results with a secondary emphasis on investing minimal capital.
Team Selection: Mike Walker, CFO, was chosen as the Project Sponsor. Mr. Walker
has had prior experience in warranty as the VP of product support. Michael Taylor, Central
Office Manager, is the Process Owner. Green Belts on the project were Blake Lilly,
Warranty Manager; Eric Click, Controller; Randy Trump, Coal Division Sales Manager; and
James Milam, Logan Branch Manager. I was the Black Belt chosen to manage the project.
My project sponsor was very supportive and has a high-level influence at Walker Machinery.
My Green Belts are all high-performing managers, representing each key business area that
touches warranty expense. If the warranty expense process can be improved at Walker
Machinery, this was the team to do it.
Stakeholder Summary and Communications Plan (see Appendix C): Typically two
separate documents by the Caterpillar 6 Sigma recipe, I have combined the Stakeholder
Summary and Communications plan into one document. This high-profile project included
key stakeholders such as the company’s Owners, Controller, Vice President of Sales, Vice
President of Service, Central Services Manager, Warranty Manager, and Branch Parts and
Service Managers. The Stakeholder Summary indicates each key stakeholder’s level of
impact, level of influence, current position, and reaction to change. The Stakeholder
Summary also indicates who is responsible for managing each key stakeholder. The
Communications Plan indicates the method and frequency of contact between the key
stakeholders and the persons in charge of managing the key stakeholders.
Voice of the Customer (see Appendix D): Another often-used 6 Sigma define tool is
the Voice of the Customer, or VOC. The Voice of the Customer takes the customer’s
concerns and translates them into critical customer requirements, or CCR’s. Critical
customer requirements are quantifiable and are specific things necessary to fulfill a
customer’s needs. Customer concerns for this project included rapid response to warranty
failures, minimal repair expenses while a machine is under warranty, production, and fair
value. These concerns translated into critical customer requirements of 4 to 8 hour
response time, fair treatment regardless of black-and-white warranty terms, quick and cost
effective warranty processing, and good communication.
Voice of the Business (see Appendix E): Voice of the Business, or VOB, is similar to
Voice of the Customer. It translates the concerns of the business and translates them into
critical business requirements, or CBR’s. Critical business requirements of this project
included minimizing our warranty expense, retaining our current customers, and attracting
new customers. These concerns translated into sending the right mechanic to the job with
the right parts the first time, knowing what is covered and what is not covered under
warranty, holding customer’s accountable for abuse, and building a good relationship with
Process Maps (see Appendices F and G): The first iteration of the Process Map was a
mess. The team discovered quickly that warranty is a global process that touches nearly
every operational area of the company. The second attempt at mapping the warranty
process included one functional deployment, or “swim lane,” process map for the Sales
Department warranty process and one for Service Department warranty process. The Sales
Department warranty process begins with the negotiation of the sale with the customer and
ends with the enrollment into warranty with Caterpillar. The Service Department warranty
process begins with a customer’s machine failing under warranty and ends with the
machine being repaired and put back into service.
SIPOC (Suppliers, Inputs, Process, Outputs, and Customers – see Appendix H): With
such a massive process, it was not surprising to have numerous suppliers, inputs, outputs,
and customers. Suppliers include Caterpillar Insurance, Walker Warranty Department,
Walker Sales Department, and Walker Service Department. Inputs include new machine
sales, new machines requiring warranty service, communication (knowing the problem with
the machine, or troubleshooting on the phone), education (what is covered and not covered
under warranty terms), and an understanding of how to administer warranty. Outputs
include warranty letters to the customer and Walker Parts and Service Sales
Representatives, machine being repaired with minimal impact to the customer, and peace
of mind that risk has been minimized. Customers include large mining product, or LMP,
customers, Core machine customers, and the Walker Sales Department rental operation
Gap Analysis: The Gap Analysis depicts the gap between current performance and
desired performance. The project team originally agreed to state the gap as follows:
( P + R ) – C = Gap
P = Cost of extended premiums
R = Warranty residuals (warranty invoices less warranty settlements)
C = Cost that is recovered when machines are sold.
We found right away that our accounting and invoicing methods did not lend
themselves to easily calculating the gap; costs of extended premiums and warranty
residuals were lumped together in the New Cat Extended Warranty account and the cost of
warranty that is recovered when a machine is sold is not listed as a separate line item on
sales invoices. We later determined that this was not a good measure to determine
performance because we could simply “solve the problem” by passing the expenses of
warranty costs onto the customer. We felt that a better way of measuring the gap was as
CW1 – CW2 = Gap
CW1 = Current cost of warranty as a % of machine cost
CW2 = Target warranty cost of warranty as a % of machine cost
If there is a phase where a Walker Machinery 6 Sigma project can be halted in its
tracks, it is the measure phase. We have few precious Information Systems resources who
have the time or the understanding of business processes to query our equipment
management systems to get measurement data for project teams. There are a few people
in our company who are Sequel-trained process experts, but their time is usually consumed
by demands from their immediate supervisors. We have experimented with training 6
Sigma Black Belts in Sequel, but it is a difficult skill to master without having the opportunity
to use it on at least a weekly basis. Our most recent solution to provide Black Belts with
data was to make it the responsibility of the Master Black Belt to learn Sequel and be the
data resource for all Black Belts.
Measure Plan (see Appendix I): The purpose of the measure phase is to translate a
business problem into a statistical problem. Taking into consideration the cause variables
from the goal statement, the voice of the customer, and the voice of the business, the team
determined what to measure, how to measure, and who would do the measuring.
Warranty Administration: The team wanted to measure the performance of
warranty administration at Walker Machinery from the first phone call to the service
department requesting service to the time that a warranty claim is filed. For this task, the
team decided that James Milam, Green Belt and Logan Branch Manager, and Michael
Taylor, Process Owner and Central Services Manager, would visit every service department
in the company and interview service managers, service clerks, and service technicians.
From these interviews, Milam and Taylor were able to contribute to the construction of a
to-be process map that detailed best service and warranty administration practices.
Another key deliverable that came from these interviews was an electronic uniform
service repair work order form (see Appendix J). The purpose of this report is to guide the
service coordinator through every necessary step for completing a work order while giving
the warranty department the detailed information that they need in order to file warrant
A recurring theme from key stakeholders was that there was no accountability built
into the warranty process at Walker Machinery. The team felt that if we were going to build
accountability into the process that we first had to clearly define the process and train
people so that they understood the process and how their input affects the process (see
The Interdependence of Process,
Training, and Accountability
Warranty Residuals: Warranty residual is broken down into four components: parts,
labor, miscellaneous, and travel. Warranty residual is difficult to understand because there
are several ways to measure residual (see Figure 5):
1. Warranty invoiced less warranty claimed.
2. Warranty claimed less warranty credited.
3. Warranty invoiced less warranty credited.
We were mostly interested in warranty invoiced less warranty credited, as this is the
net cost to the company. To further complicate matters:
1. Parts residuals are inflated because warranty parts are invoiced at a higher price
than Caterpillar will reimburse.
2. Labor residual varies based on machine hours; Caterpillar will only pay labor on new
machine warranty claims if the failure occurs in the first 250 hours of operation.
Labor residual varies by extended coverage based on the terms of the extended
warranty premium that was purchased.
3. Miscellaneous and travel expenses are rarely reimbursed.
4. Industry benchmarks vary widely because of the variation of machine sales, machine
5. Industry benchmarks metrics are for claimed to credited residual, which does not
give a clear indication of a dealer’s true expenses; a dealer may elect to claim a
higher percentage of their actual invoice in hopes to recover a larger percentage of
total dollars or may elect to claim only what they are certain they will be reimbursed
for in hopes to get a good scorecard. Therefore, it is difficult to determine how
“good” or “bad” we are doing versus the industry.
The team determined that detailed reports would be required to manage warranty
expense. The team recommended a report to track warranty expense for every machine
actively enrolled in warranty. The team also recommended a historical report to indicate
average warranty expense for machines that have completed their warranty life cycle.
Further recommendations included an exception report that will include all warranty
work orders in which the residual exceeds a given percentage for a given warranty code.
This exception report will be reviewed by the Warranty Manager and a sales department
representative. If the service department cannot justify the expense of the repair, then a
portion of the residual will be charged back to that branch store’s direct expenses. For
example, if the exception report indicates that a branch service department spends 10
labor-hours performing a job that Caterpillar will only reimburse for 5 labor-hours and the
Warranty Manager and sales department representative notice that the Service Technician
recorded on the service report that he was working in the field on the side of a mountain in
a foot of snow then the Warranty manager may pursue Caterpillar for the additional labor.
If, on the other hand, a service department travels to a job 4 times and spends 10 labor-
hours to replace a water pump that should only require a maximum of 2 trips to the job and
2-labor hours to replace and has no valid reason for the overages, the branch service
department’s direct expenses may be debited for the overage. The Branch Manager must
approve the charges, but the Product Support Vice President may approve the charge if the
Branch Manager is unresponsive to the request.
Warranty Premiums: Warranty premium purchases accounted for over one-third of
2006 warranty expenses. Warranty premium purchases had risen dramatically in 2006 due
to a change in Caterpillar’s warranty product offering: Caterpillar used to offer a coverage
called Value Assurance, or VA. Value assurance was available at no cost to the dealer –
there were only 2 catches:
1. The dealer had to enroll for coverage within 30-days of the machine delivery date.
2. The coverage did reimburse for any labor.
In 2006, VA coverage was discontinued, making Caterpillar Insurance the only other
available alternative (see Figure 4). Caterpillar Insurance was very costly to Walker
Machinery in 2006, while the benefits of labor reimbursement would not be fully realized
until mid 2007 (see Figures 5 and 6). This exaggerated warranty expenses on the 2006
general ledger due to accounting for warranty on a cash basis. In all fairness, overall
warranty expenses would likely normalize by 2007 or 2008, due in no part to this project.
Number of Extended Warranty Premiums
Claim Year 2001 2002 2003 2004 2005 2006
Warranty Residual Percentages
Parts Labor Misc Total
Invoiced to Claimed Residual 11.71% 65.46% 64.22% 40.19%
Claimed to Credited Residual 7.83% 24.41% 40.29% 14.16%
Invoiced to Credited Residual 18.62% 73.90% 78.63% 48.66%
Cost of Extended Warranty Premiums
2001 2002 2003 2004 2005 2006
Warranty Selection: In order to determine if extended warranty premiums, on
average, are a good buy for the customer and for the company, we measured the net
benefit of warranty premiums as follows:
WS1 – PP1 = NB
WS = Total of warranty settlements paid on expired extended premiums
PP = Warranty premium purchase price
NB = Net benefit of extended warranty premium
The measurements proved that on average extended warranty enrollments have a
negative benefit. On average the cost of the extended premium outweighs the total
settlement dollars reimbursed by Caterpillar for warranty repairs (see Figure 7). This was
not a surprising discovery, given that Caterpillar Insurance is a profit generating division of
Caterpillar. Caterpillar Insurance is just that: insurance.
Net Benefit of Extended Warranty Premiums (All Models)
95 % C onfidence Inte rv als
It is understandable that a customer who owns one machine, or even a small fleet of
machines, may view insurance as a value-added product because it transitions the risk of
paying for expensive repairs from himself to the manufacturer, just as collision insurance on
an automobile policy protects a consumer from paying for expensive repairs or total loss in
the event of a crash. From the perspective of a Caterpillar dealer, though, with a machine
service population of hundreds of machines, it could be argued that self-insurance or
selective insurance may be a better option, depending on the owner’s tolerance to risk. In
order to make recommendations for selective insurance, we measured the net benefit of
extended warranty by model (see Figure 8). The net benefit of extended warranty is the
total of all warranty settlements minus the cost of the warranty premium. Most models, on
average, had a negative extended warranty net benefit. 740 off-highway truck warranties
provided the least benefit; every truck sampled had a negative net benefit. Nearly every
D10 track type tractor extended warranty had a negative net benefit. On the other hand,
992 wheel loaders net warranty benefit was close to zero and had the greatest variance of
Extended Warranty Benefit by Model
Net Benefit (Dollars)
14H 318 320 321 322 330 345 517 525 740 777 938 980 992 D10 D11 D6 D8 D9
Caterpillar Machine Quality: In order to eliminate or mitigate Caterpillar machine
quality issues it is imperative to identify recurring problems so that problematic machines
can be monitored and repaired before they fail in the field. For example, our Logan branch
had identified a recurring problem with D10T steering clutches failing in the field under
warranty. They learned to identify characteristics of a machine nearing failure and took
preventative measures to correct the problem before failure. Any suspicion could be
confirmed by taking hydraulic oil sample from the steering clutch housing. If the hydraulic
oil sample returned lab results indicating a high concentration of iron and copper, it was
highly likely that the machine would soon fail in the field. The Logan branch would then
“kidney lube” the machine to remove the iron and copper particles from the steering clutch
housing, contact Caterpillar to notify them of the impending failure, obtain approval from
Caterpillar’s technical group to perform preventative repairs, and repair the machine before
failure, saving the customer several hours of downtime and saving Walker Machinery and
Caterpillar thousands of dollars.
Our Belle branch identified a problem with weak radiator guards on small track-type
tractors. The guards were made of thin gauge metal louvers that would not protect the
radiator from intrusions from sticks or other debris. It was very common for new rental
fleet tractors to have punctured radiators within the first few months of service. Our
Walker Weld Shop designed and retrofitted brand new tractors with heavy-duty drilled
plate radiator guards that could not be penetrated by any intrusions. Spending a little bit of
money on radiator guards saved the company thousands of dollars of radiators.
In order to mitigate or eliminate Caterpillar machine quality issues, flaws must be
identified as soon as possible. Process and product improvements must be communicated
to Caterpillar and all Walker Machinery branches as soon as possible; spreading word of the
problems and fixes will multiply the benefits. We decided to incorporate this improvement
with our New Product Introduction 6 Sigma Project. The New Product Introduction team is
composed of our best and brightest Technical Communicators, Service personnel and Sales
personnel. This team had already developed a system of communication for distributing
product repair and marketing information to the entire company.
As a means to identify problematic machines using facts and data, a report was
developed that indicates warranty residual costs as a percentage of machine list price (see
Figure 9). Models such as the 345 excavator, 777 truck, and D10 track-type tractor show
having the highest average warranty residual as a percentage of their list price, thus
indicating that they are problematic machines. Problematic machines are less reliable,
require more repairs, and therefore increase warranty expense.
Boxplot of Warranty Residual as a % of lis vs Compat Model
Warranty Residual as a % of list price
H 2 0 30 45 2 5 77 8 5 89 93 3 0 38 66 80 88 9 2 10 11 D5 D6 D8 D9
16 3 3 3 5 7 7 7 7 9 9 9 9 9 9 D D
Warranty Accounting: Converting from a cash-basis accounting method to an
accrued liability method of accounting is not a simple task. Walker Machinery auditors have
urged Walker Machinery to accrue warranty liabilities in the past, but were dismissed
because there was no known way of determining how much the liability should be.
In the measure phase Eric Click, Green Belt and Controller, worked with our auditors
to see what impact the change in accounting principle would have on the company. He
found that a change in accounting principle would necessitate restating our financials for
the last two accounting periods. Restating our financials would put a notice on our credit
bureau describing the restatement as a “correction of an accounting error.”
In order to restate our financials, we had to determine what liabilities should have
been accrued at the end of the last two accounting periods and at the date of conversion.
Determining 2006 and 2007 year-end warranty liabilities required our Information Services
department to order backup tapes of data from the end of the last two accounting periods
from Caterpillar. Using these data sets, we queried machines with active warranties as of
the end of each accounting period and subtracted their warranty residuals from the average
residual of like models:
AV1 – AC1 = AL
AV = Average liability by model
AC = Actual residual by serial number for machines enrolled in warranty
AL = Accrued liability
In order to maintain an accrued liability system, many reports would be required. A
report to estimate warranty liability for every model would be required so that when a
machine is sold or put into rental fleet the amount to credit the accrued liability account
would be known. A system would also have to be developed in order to debit the Sales
Department’s direct expense account and credit the accrued liability account at the point of
sale or conversion from new inventory to rental fleet.
Another report would be required to track a machine’s warranty expense while
actively enrolled to ensure that estimated liabilities are, on average, adequate and to
identify any machines that have far exceeded, or are on track to far exceed, their estimated
Finally, a report would be required to reconcile the accrued liability account every
time a machine’s warranty expires. If the actual warranty expense during active warranty
period exceeds the estimated accrued liability then the Sales Department’s direct expense
account will be debited and the accrued liability account credited the difference. If the
actual warranty expense during active warranty period is less than the estimated accrued
liability then the Sales Department’s direct expense account will be credited and the
accrued liability account debited the difference.
The final hurdle for conversion to accrued liability would involve convincing the
owners of the company to convert. Click believed that ownership might be unwilling to
convert due to our credit bureau describing the restatement as a “correction of an
accounting error.” The team believed, though, that even if the owners decided not to
convert that the project would not be killed. While better matching expenses to revenues
would be beneficial to the company, it would not, in and of itself, decrease our actual
Cause and Effect Diagram (see Appendix K). : At the heart of the analyze phase is
the cause and effect diagram, also referred to as the fishbone or Ishikawa diagram. 6 Sigma
drives toward process improvements by eliminating or mitigating root causes of the
problem. If the aim were to simply mask the symptoms of the problem, then the symptoms
will likely persist or resurface because the root cause of the problem would still exist. By
clearly stating the problem and asking “why” 3 to 5 times, potential root causes will be
The most traditional cause and effect diagrams begin by stating the problem and
branching off into 6 generic areas (6 M’s) where potential root causes may exist:
measurement, man, Mother Nature, machine, method, and materials. I have taken this
approach on projects when the problem statement has a small scope of 1 or 2 key
measurements that are being explored. I will sometimes construct multiple cause and
effect diagrams for each key measurement using the 6 M’s. For projects such as this one
where the goal statement references many areas of measurement, I use each “X” from the
goal statement in place of the 6 M’s. The team brainstorms potential root causes for each
branch of the cause and effect diagram, taking into consideration each of the 6 M’s.
The cause and effect diagram uncovered potential root causes that the team
categorized into the following groups:
Root Cause Ranking (see Appendix L): Each potential root cause was listed on a root
cause ranking form which team members judged on the following criteria:
1. Occurrence: How often does this happen?
2. Priority: How much impact does the root cause have on our goal?
3. Influence: How much control do we have over the root cause?
The potential root causes were then sorted from highest to lowest. The team
brainstormed improvement ideas that would eliminate or mitigate the root causes. Ideas
generated from this brainstorming session would later be discussed in more detail and be
made into formal improvement recommendations to be presented to the Project Sponsor
and Key Stakeholders.
In the improve phase, all of the information from the previous phases are filtered
into detailed improvement suggestions. The team developed detailed improvements that
addressed needed training and reporting issues that would eliminate or mitigate root
causes that drive warranty expense.
Training: Training improvements were designed to broaden the scope of warranty
training. Prior to this project, formal warranty training was administered only to a select
group of managers as a module of Supervisor Training and Education for Product Support
program (STEPS). The curriculum was actually quite good and gave a very good foundation
of what warranty is, what it covered, and how to determine warranty coverage. The
training even included details on how to properly complete service reports. The team
concluded that training all employees who were involved in the warranty process would be
necessary because education and clear expectations must precede accountability.
Because Walker Machinery had no written warranty processes prior to this project,
the training lacked specific how-to’s that would provide a uniform method of handling
warranty from call to claim. The team worked created to-be sales and service process maps
(see Appendices M and N) based on best practices gleaned from interviews during the
measure phase and improvement ideas from the analyze phase. The to-be processes were
given more detail and clarity through written standard operating procedures. The new and
improved warranty training will incorporate training to these process maps and standard
The team felt that it was important to have diverse training sessions with employees
from every operational area represented. This would give the opportunity to communicate
each employee’s responsibility in the process and how it effects the next person in the
process. This general session would be brief and at a high level. More detailed training
would be necessary for Service Coordinators, as they have an enormous responsibility in
determining warranty coverage on a daily basis. Untrained Service Coordinators who
promise warranty coverage when it does not apply has the potential for considerably raising
warranty expenses for the dealer.
Company-wide training would also raise awareness of warranty expense. The team
discovered that many well-meaning employees were under the misconception that
warranty work orders were reimbursed 100% by Caterpillar. Past experience has proven
what get’s measured gets managed, so part of the training will be sharing warranty expense
and trends with all employees.
Training a work force of over 700 employees would not be an easy feat. The team
proposed a train-the-trainer approach to reach all sales and service personnel throughout
the company. This method would this be the most rapid way of training such a large
number of people. The plan was for the warranty manager to train key service and sales
personnel at every branch. A prerequisite for this training would be successful completion
of Caterpillar University’s online warranty training module. Once all key service and sales
personnel had been trained, they would train all service and sales personnel in their
respective branches. Another benefit for this method of training is that it forces key service
and sales personnel to become process experts. Key service and sales personnel would
have to have a deep level of understanding of the materials in order to teach them to all
service and sales personnel.
Reporting: Reporting improvements were designed to indicate historical warranty
expense in order to predict future warranty liabilities. The reporting would track changes in
historical warranty expense by model. There was a team appointed to review historical
warranty expense on a yearly basis and adjust estimates as necessary. A similar report was
recommended to track estimated warranty expense versus to-date warranty expenses for
machines actively enrolled in warranty.
Reporting improvements were designed to estimate warranty liability at the point of
sale or conversion into rental fleet. Standard warranty expense would be stated as a
percentage of dealer cost by machine model. Extended warranty would be stated as a
percentage of the premium enrollment cost. Carter Machinery, our neighboring dealer to
the South, uses 30% of the premium as a rule of thumb for estimating residual liabilities for
Caterpillar Insurance extended warranties.. It stands to reason that Caterpillar Insurance
extended warranty premiums are a direct reflection of the estimated machine reliability
and cost of warranty repairs.
Reporting improvements were also designed to track estimated warranty expense
versus actual warranty expense so that the accrued liability account could be reconciled on
a machine-by-machine basis as their warranties expire. The team determined that the ideal
time to reconcile the accrued liability account would be 6 months after the warranty has
expired, to allow time for all warranty invoices to be release, all warranty claims to be filed,
and all warranty settlements to be applied.
Reporting improvements were recommended to track the cost/benefit of warranty
types by machine model to aid in warranty selection. It is doubtful that Walker Machinery
would be willing to take the risk of self-insuring their entire service population of machines.
DISCUSSION OF RESULTS
The New Caterpillar Warranty Expense Project is officially at the beginning of the
control phase. The first step of the control phase is implementing the team’s improvement
ideas. The STEPS training curriculum has been modified for training the initial 5 waves of
trainers, to-be process maps have been created (see Appendices M and N) and detailed
standard operating procedures have been drafted. To-be process maps and standard
operating procedures have been uploaded to the company intranet’s standard operating
procedure library. We fully expect for warranty expense to decrease because of raised
awareness, standardized processes, and accountability throughout the company.
Many hours have been invested into determining the dollar amount for restating the
company’s financials for accrued liability. Though in theory a simple process, the lack of
historical data for Caterpillar Insurance warranties, hundreds of warranty type codes, and
inconsistent or nonexistent model compatibility codes complicate the process.
I have coded a Sequel to estimate warranty liabilities by machine serial number and
warranty type code. The report calculates the to-date residual warranty expenses for each
machine actively enrolled in warranty. The report also calculates an estimate of total
liabilities by serial number prefix and warranty type code, by model number and warranty
type code, and by extended premium cost and warranty type code. I have coded the Sequel
to select the best estimate based on the number of historical records that comprise each
average. Finally, the report calculates the estimated accrued warranty liability for each
machine by subtracting actual to-date residual warranty expenses from the best-estimated
total liability. The sum of these totals equals the current estimate of warranty liability.
I have come to the conclusion that 6 Sigma projects are really 2 projects in one. The
first project is going through define, analyze, improve, and control to determine the root
causes of the problem and what should be done to eliminate or mitigate them. The second
project is the implementation of the recommended improvements. It is impossible to put
together a reasonable timeline for the second project until the scope of improvements is
known. What I have decided to do for every 6 Sigma project from now on is to make a
project plan for the first project then make a project plan for the second project after the
improvement ideas have been approved (see Appendix O). The second project is a more
traditional project management project because we already know what we want to do, we
just have to get it done.
CONCLUSIONS AND RECOMMENDATOINS
While warranty expense has an impact on Walker Machinery’s profit after direct
expenses, it was not as dire a problem as we believed before the start of the project.
Because of the interaction between accounting for warranty on a cash basis and the
discontinuation of Value Assurance warranties, warranty expenses were over exaggerated
at year-end 2006. Even if we would not have endeavored on this project, warranty
expenses would have normalized once we began reaping the full benefits of lower labor
residuals from Caterpillar Insurance warranties.
The team’s recommendations to reduce warranty expenses were as follows:
1. Warranty administration: Train all persons involved with warranty. The team has
developed a training curriculum based on the Walker STEPS warranty-training
curriculum that will be administered to all employees who are involved with
warranty sales, repairs and administration. The training goes beyond the STEPS
curriculum by incorporating best practices, process maps, and standard
operating procedures for determining warranty coverage and completing
warranty related paperwork.
2. Warranty residual: Create an exception report for all warranty settlements with
more than a 20% residual. This report will be reviewed by the Warranty
Manager, Sales Manager, and Service Manager on a monthly basis. If the
residual cannot be justified, then a portion of the overage will be charged back
to the branch who performed the warranty repairs. This process will encourage
accountability for warranty expenses at the branch level.
3. Warranty premiums: I recommend that the executive committee consider self-
insuring warranty expense. The facts and data overwhelmingly show that, on
average, extended warranty premium purchases cost more than the settlements
we receive from Caterpillar Insurance. In order for Caterpillar Insurance to
continue being a profitable division, they will ensure that extended warranty
premiums prices, on average, exceed the settlements that they pay back to
dealers. In order to divert some of the risk of self-insuring, I recommend
purchasing stop-loss insurance.
4. Warranty selection and coverage: Create an ongoing automated report that will
aid in the cost/benefit analysis of extended warranty premiums. The Walker
Machinery New Product Introduction team will analyze the report and make
recommendations to the Sales Department based on their findings.
5. Caterpillar machine quality: Create an ongoing automated report that will
indicate the reliability of machines. Walker Machinery Technical Coordinators
will analyze this report to determine models that should be targeted for in-house
product improvements. All branches that develop product or process
improvements will communicate the solutions to the Technical Coordinators so
that they can communicate the information to the rest of the company.
6. Warranty accounting: Convert from a cash basis method of accounting to an
accrued liability method of accounting. Create an automated monthly report
that estimates the company’s warranty liabilities. Reconcile the accrued liability
account and warranty expense accounts on a monthly basis.
It is likely that further examination self-insurance will become a stand-alone project.
There are significant potential benefits and risks that accompany self-insuring a fleet of
machines, especially with the questionable quality of newly released Caterpillar products. It
would be unwise to make a decision to self-insure without fully understanding the extent of
risk and what measures may be taken to limit such risk.
Caterpillar New Machine Warranty Expense
BUSINESS CASE OPPORTUNITY STATEMENT
Reducing warranty expense without compromising customer satisfaction will have a
Walker Machinery Co. currently incurs significant costs in warranty that impact the
material impact on improving Walker Machinery profit after direct expenses.
direct expense lines of the Sales Department operating statement. Growth of machine
Warranty expenses have been trending upward since 1997 and reached $X million
deliveries over the last few years means these costs will continue for the next two
dollars year end 2006. Annualizing January 2007 month end expenses indicates the
to three years. These costs will also roll into years of lower projected unit sales
upward trend will continue. The large amount of warranty residual dollars
pushing warranty and policy expense higher as a percentage of current sales.
indicates new process with greater financial accountability is needed.
GOAL STATEMENT PROJECT SCOPE
Y1 = f(X1+X2+X3+. . .)
Include New Caterpillar Machine Warranty Costs
Y1= Warranty Expense
Large Mining Products
X1= Warranty Administration - Call to Claim
X2= Warranty Accounting
X3= Warranty Residual
X4= Warranty Premiums
X5= Warranty Coverage/Selection Exclude BCP and CCE (can be replicated to these lines later)
X6= New CAT Machine Quality Policy , PIP's, PSP's
X8= Additional Goals
PROJECT PLAN TEAM SELECTION
PROJECT OPENING 2-May-2007 Process Owner Mike Taylor
Project Sponsor Mike Walker
Define Gateway 11-Jun-2007 Black Belt Craig Jones
Measure Gateway 18-Sep-2007 Responsibilities
Analyze/Improve Gatew 22-Jan-2008 Green Belt Blake Lilly
Control Gateway 2-May-2008 Green Belt Eric Click
Green Belt Randy Trump
Green Belt James Milam
PROJECT COMPLETION 2-May-2008
Six Sigma Operations, Cecil I. Walker Machinery Co. 2005
New Caterpillar Warranty Expense Project Timeline
ID WBS Task Name Duration Start Apr 8 Apr 15 Apr 22 Apr 29 May 6 May 13 May 20 May 27 Jun 3 Jun 10 Jun 17 Jun 24 Jul 1 Jul 8 Jul 15 Jul 22 Jul 29 Aug 5 Aug 12 Aug 19 Aug 26 Sep 2 Sep 9 Sep 16 Sep 23 Sep 30
1 1 Kickoff meeting 1 wk Mon 4/30/07 Kickoff meeting
2 2 Define 5 days Mon 5/7/07 Define
3 2.1 Process map 0.5 wks Mon 5/7/07 Process map
4 2.2 Key stakeholder analysis / communication plan 0.5 wks Mon 5/7/07 Key stakeholder analysis / communication plan
5 2.3 SIPOC 0.5 wks Wed 5/9/07 SIPOC
6 2.4 VOC 0.5 wks Wed 5/9/07 VOC
7 2.5 VOB 0.5 wks Wed 5/9/07 VOB
8 3 Measure 20 days Mon 5/14/07 Measure
9 3.1 Sequel 1 wk Mon 5/14/07 Sequel
10 3.2 Warranty department data 3 wks Mon 5/14/07 Warranty department data
11 3.3 Stratify data 0 wks Fri 6/1/07 Stratify data
12 3.4 Discuss measure findings 0.5 wks Mon 6/11/07 Discuss measure findings
13 3.5 Define / Measure gateway 0.5 wks Wed 6/13/07 Define / Measure gateway
14 4 Analyze 12.5 days Mon 6/18/07 Analyze
15 4.1 More IS sequels 1 wk Mon 6/18/07 More IS sequels
16 4.2 More warranty dept data 1 wk Mon 6/18/07 More warranty dept data
17 4.3 Stratify data 0 wks Fri 6/22/07 Stratify data
18 4.4 Discuss analyze findings 0.5 wks Mon 6/25/07 Discuss analyze findings
19 4.5 Problem statement(s) 0.5 wks Mon 6/25/07 Problem statement(s)
20 4.6 Fishbone diagram(s) 0.5 wks Wed 6/27/07 Fishbone diagram(s)
21 4.7 Select root causes 0.5 wks Mon 7/2/07 Select root causes
22 4.8 Validate root causes 0.5 wks Mon 7/2/07 Validate root causes
23 5 Improve 20 days Wed 7/4/07 Improve
24 5.1 Visit Carter and/or Toromont 2 wks Wed 7/4/07 Visit Carter and/or Toromont
25 5.2 Brainstorming session 0.5 wks Wed 7/18/07 Brainstorming session
26 5.3 Chart improvement ideas 0.5 wks Mon 7/23/07 Chart improvement ideas
27 5.4 Select improvements 0.5 wks Wed 7/25/07 Select improvements
28 5.5 To-be process map 0.5 wks Wed 7/25/07 To-be process map
29 5.6 Analyze / Improve gate review 0.5 wks Mon 7/30/07 Analyze / Improve gate review
30 6 Control 7.5 days Mon 7/30/07 Control
31 6.1 Implement improvements 0.5 wks Wed 8/1/07 Implement improvements
32 6.2 Design control plan 0.5 wks Mon 7/30/07 Design control plan
33 6.3 Control Gateway / Turnover meeting 0.5 wks Mon 8/6/07 Control Gateway / Turnover meeting
34 7 Milestones 67.5 days Mon 4/30/07 Milestones
35 7.1 Start 0 days Mon 4/30/07 Start
36 7.2 End 0 days Wed 8/8/07 End
Task Progress Summary Rolled Up Critical Task Rolled Up Progress External Tasks Group By Summary
Project: New Cat Warranty project plan
Date: Sun 3/30/08 Critical Task Milestone Rolled Up Task Rolled Up Milestone Split Project Summary Deadline
Stakeholder Summary / Communication Plan New Warranty Expense
Level of Level of Current Reaction to Change: Who is Responsible What will be the
Key Stakeholder Impact Influence Position Enthusiast / Follower / Managing This Method and Frequency
(H,M,L) (H,M,L) (+,-,?) Change Target Stakeholder ? of Contact?
In person, weekly and
Mike Walker, Project Sponsor H H + Enthusiast Craig send meeting
minutes, gate reviews
In person, every other
Wayne Coleman, VP of Sales H H + Enthusiast Craig week, gate reviews
In person, every other
Tim Mclean, VP of Service H H + Enthusiast Craig week, gate reviews
Tim, James, Branch Managers
Parts and Service Managers H H ? Change Target
and Craig Meetings
In person at meetings
Blake Lilly, Warranty Manager H M + Enthusiast Craig and on the phone/in
In person at meetings
Michael Taylor, Central Service Craig and
Manager H H ? Enthusiast
and on the phone/in
In person at meetings
Eric Click, Controller M H ? Follower Craig and on the phone/in
Include at gate
Dick and Steve Walker H H + Enthusiast Eric and Craig reviews and monthly
in person meetings
VOICE OF THE CUSTOMER (VOC)
New Warranty Expense Project
VOICE OF THE CUSTOMER KEY CUSTOMER ISSUE CRITICAL CUSTOMER REQUIREMENTS (CCRs)
What is their concern? What does this really involve? Specific needs necessary to a fulfill a customer's needs.
Customer wants to talk to the dealer at the time a problem surfaces and
Customers want rapid response to expects a response within 4 to 8 hours on production machines: if they
Customer wants minimal down-time on their jobs.
warranty failures. call in the morning, service that day - if they call in the afternoon, service
by the next morning.
Customers want to have minimal repair
We do not want to pay for TT&M on repetitive Customer wants satisfaction from the Caterpillar dealer - Customers
expenses while machine is under
failures. expect dealers to be fair, regardless of black and white warranty terms.
We need to have good processes in place to handle warranty quickly and
Customers want production. Rapid response to warranty failures.
Customer will buy from our competitors if they are We need to communicate with the customer and Caterpillar to do what is
Customer wants fair value
not satisfied with our warranty administration right for the customer.
Craig Jones, Six Sigma Operations, 2007
VOICE OF THE BUSINESS (VOB)
New Warranty Expense Project
VOICE OF THE BUSINESS KEY BUSINESS ISSUE CRITICAL BUSINESS REQUIREMENTS (CBRs)
What is our concern? What does this really involve? Specific needs necessary to a successful business operation.
We want to fix the machine right the first time we We need to send the right mechanic(s) with the right part(s) to the job
go to the job the first time.
There are product problems form Caterpillar. Knowing what is covered
We want to minimize our warranty We want Caterpillar to cover the bulk of our
and what is not covered by warranty - hold customers accountable for
expenses. warranty repairs
We need to tell the customer when the machine should be downed and
Customer may cause non-warrantable damage by insist that they park the machine until we can respond - they need to
using the machine when it should be downed. know that they may be held accountable for failure if they continue
operating the machine.
Build a good relationship with they customer - communicate with the
We want to retain our current We want our customers to feel that they have
customer - make sure that we understand what the customer expects on
customers and attract new business. been treated fairly.
a repair by repair basis.
Craig Jones, Six Sigma Operations, 2007