Warranty expenses are costs any business is going to incur for the replacement or repair of products it has sold. The total cost of warranty expenses will be limited to the period allowed by the business for the product. There is no liability of warranty for the business towards the product on cessation of the period stipulated. Therefore, during the period the liability is effective the expenses under warranty add up to warranty expenses. A business can calculate this expense as an estimate. Warranty Claim Management refers to the strategy a business has to adopt in order to limit warranty claim expenses to an affordable figure.
The Strategy of Limiting Warranty Expenses
If you look at the loop comprising of the OEM, the supplier and the customer, everyone wants more for himself. Since the customer is at the starting point of the loop, his demand naturally comes first and he wants more bangs for his bucks. It is to meet this demand that the concept of warranty has come about. Therefore, while extending warranty cover is not negotiable because of customer acquisition, OEMs do need to limit the expenses due to warranty claims. While warranty was introduced by the OEM to attract customers to buy the product, the situation is such that warranty management has now become a mammoth task. Today the OEM needs to tackle problems such as claim management, reverse logistics and the mechanism of charge back. However, with the right strategy, warranty claim management system can be used in support of the advantage of one’s business. It is important to see how warranty costs can be limited.
Warranty Costs Involved
The three Ps are the areas where warranty costs can be said to lie in. These are the process costs, people costs and the product costs. Therefore, if we limit these costs it would bring about considerable savings in the expenses towards warranty costs.
- Product The first of these costs, one that may be reduced by half, is that of warranty lifecycle and improvements carried out on the process of product development. There is no doubt that warranty costs can be reduced if the product quality is good. Product quality can be proven by accelerated test procedure under simulated environmental conditions. These test results can be used to lay down the warranty cover awarded to products. Further, shifting to electronic controls in automobile industry is an option that will further reduce warranty costs.
- Process The second method of reducing warranty costs is by improving the process with the help of automation. The use of latest software helps automate the processes and brings about an improvement in the management of warranty liability.
- People The third method of reducing warranty claim expenses lies in a meticulous processing of claims. This is the People option in the form of warranty software.
- Analytics The fourth type of warranty costs that can be reduced drastically is in warranty claims. Since fraudulent claims are a huge source of increasing warranty costs, taking the help of warranty analytics will go a long way in uncovering errors and the perpetration of fraud. It is best to make your warranty system predictive so that fraudulent claims can be totally wiped out.
- Catalogue Cost Cutting the catalogue costs by moving the paper catalogue online is a good option and will save a considerable amount of money.
It is best to aim at a long term reduction in warranty costs instead of taking short term quick fixes. A holistic method of reducing warranty claim expenses is necessary in order to obviate the reduction in market share and a lack of repeat customers.
Preethi Vagadia is currently a Senior Business architect with the Service operations practice at a well-known IT Industry in Bangalore. She has worked in several process improvement projects involving multi-national teams for global customers. She has over 8 years of experience in mortgage technology and has successfully executed several projects in logistics management, logistics integration, reverse logistics, campaign management software solution, warranty software and programmatic solutions.