ANALYSIS
Creating a Stronger Customer Link

Despite progress made against key warranty chain improvement initiatives, service and warranty management executives still wrestle with post-sale customer satisfaction issues and escalating warranty costs.

These executives are revising business processes and adopting technology solutions to better manage warranty workflow, enhance claims administration, reduce costs and implement a closed-loop analytic-driven warranty chain, according to the results of a survey Aberdeen conducted in May with 170 service and warranty organizations.

Benchmarking the Best-in-Class

Aberdeen used three key performance criteria to distinguish Best-in-Class warranty companies: claims processing time, claims processing improvements, and the two-year reduction in revenue reserves to support warranty operations. Based on aggregate performance on these KPIs (key performance indicators), Best-in-Class firms reported:

• 2.7 days on average for warranty claim processing time;
• a two-year warranty claim processing time improvement (26 percent); and
• and a two-year reduction in annual revenue required to support warranty claims (13 percent).

Survey results also showed that the firms enjoying Best-in-Class performance shared several common characteristics. Best-in-Class companies are:

• nearly three times as likely as Laggard firms to have deployed warranty analytics technology;
• 66 percent more likely than Laggard firms to have an integrated warranty management and service organization in place; and
• 54 percent more likely than Laggard firms to have a central knowledge warehouse to maintain warranty performance data.

The research revealed that Best-in-Class companies hold a significant lead over other firms in terms of completed warranty process improvements. For example, 59 percent of the Best-in-Class (vs. 30 percent of all others) have overhauled their extended warranty sales processes; other areas of focus included improvements in internal repair workflow, claims workflow and spare parts logistics. This allows them to focus on broader initiatives like building out a closed-loop warranty management workflow and other higher-level initiatives.

Catching Defects

Another key component of the Best-in-Class strategy is to link the warranty process with product design rather than just manufacturing. By feeding warranty information into the design process rather than manufacturing, organizations can catch defects that can cause spikes in claims at the design stage, saving costs and reducing risk.

Also, with the number of manufacturing processes and sub-assembly processes being outsourced, it makes reliance on warranty to manufacturing links to spot the root cause of failure challenging. In addition to complete closed-loop warranty management processes, the Best-in-Class are also following the solid strategy of focusing on process first. While technology enablers play a strong role in strategic actions, business process improvements lead the strategic focus by the Best-in-Class.

Lastly, the research suggests that strong warranty processes can be a powerful tool in a tightening economy.

Visibility Into the Warranty Process

A review of the enabling technologies currently in place within warranty management organizations shows little significant difference between Best-in-Class and others in the basic areas of claim processing and reporting. However, Best-in-Class hold a significant lead over other firms in the deployment of warranty analytics and the use of product life cycle management. It's this more advanced technology link that enables the adoption of early-stage design change and closed-loop warranty management that helps separate the Best-in-Class from less advanced organizations.

Warranty analytics, currently in place among nearly half of Best-in-Class organizations, also leads the list of technology enablers that organizations across all maturity levels are planning to use to streamline warranty operations.

Recommended Actions

Based on the findings in the report, Aberdeen suggests that companies must focus on the following to achieve Best-in-Class performance:

• Complete the closed loop. While the Best-in-Class have a substantial lead over other firms in connecting warranty operations to product design and manufacturing -- including procurement in the process, which only 20 percent of Best-in-Class now do -- they can add value by providing procurement staff with product quality performance as they negotiate contracts with new and existing component suppliers.
• Implement aggressive extended warranty sales campaigns. Nearly 40 percent of Best-in-Class firms generate 20 percent or more of their service revenue from extended warranty sales. While extended warranties can be a source of predictable and recurring revenue for service firms, increasing the number of customers under warranty or service contracts can offer more predictability within service operations, create a stronger link with customers, and open the door for more advanced service offerings.
• Offer incentives to warranty workers for better claim processing performance. While the Best-in-Class have made significant progress in installing the automation and support tools and associated measurement processes to track warranty chain performance, only 16 percent currently offer incentives to staff for better claim performance. Establishing goals and providing the proper incentives for meeting or exceeding those goals can have a significant impact on improving claim processing performance, a critical factor in improving customer satisfaction.

The Aberdeen report, Forging the Warranty Chain, is available to download for free for a limited time.

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Andrew Boyd is the chief research officer for the Aberdeen Group. He can be reached at andrew.boyd@aberdeen.com.

Sumair Dutta is a research analyst in the service management practice at Aberdeen. He can be reached at sumair.dutta@aberdeen.com.

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