Warranty is a part of doing business. Warranty management is not just the terms listed on the box.
Understanding the entire warranty process, along with your options, permits you to manage your warranty, rather than the other way around.
This is a short overview. Pieces of a warranty program occur well before the first product ships and may affect the company bottom line for years after you ship your last product. Brand promise, marketing, finance, customer service are not common areas for a reliability engineer. Yet, the impact of product failures tends to dominant warranty expenses. Therefore understanding the many elements around warranty management is essential for any reliability engineer.
Warranty Policy
Whether written down or not, you probably have a warranty policy. Do you offer unconditional returns for 2 years, or only for select portions of the product?
What is covered and for how long (or how many miles, or suitable measure) is only the start of the decisions guided by a policy. The guidelines in a policy guide the establishing and honoring of a warranty program, plus impact more than just the design of a product.
A policy many include guidance on:
- Covered Parts or Systems
- Duration(s)
- Method(s) to make a warranty claim
- Limitations or Restrictions
- Repair or Replacement options
- Accrual guidance (for the finance folks as they budget for future warranty claims)
- Marketing guidance
- Warranty recovery approach
- Disposal or use of returned products
You might find a warranty policy within our quality management set of document, or it may stand as a separate document. It may even be crafted for each product or family of products.
The policy helps an organization plan and implement a warranty program that is consistent.
Financial Elements
Warranty expenses occur typically when a product doesn’t work as expected for a customer. It may not function correctly, fail to power on, or have confusing installation instructions.
Each organization will classify a set of expenses as being a warranty expense. For many organizations, it is common to include call centers, shipping costs of returns and replacement units, and the cost of replacement units or of repairs.
Some organizations include field service visits to diagnose a problem, failure analysis on returned units, and a few may include the cost of engineering work to implement improvements based on warranty claims.
There are really two elements that finance team overseas concerning warranty:
- How much money to set aside for future warranty claims?
- Accounting for actual warranty expenses.
The budgeting for future expenses is called the warranty accrual. The actual value set aside varies depending on expected number of warranty claims, the cost of each claim, any fixed or recurring costs (call center staffing, for example) and recent history of warranty claims. The idea is to have sufficient funds available to pay for warranty claims.
The actual expense accounting is really just tracking and tallying the expenses that occur and are considered part of warranty expenses.
Legal Aspects of Warranty
Warranty is an expectation. We expect the manufacturer to stand behind their product. To make right any faults of failings of a product. Most do and do not need any laws to require offering and honoring warranties. Laws do exist and vary by country or region.
The Warranty Evolution and Laws article covers some of the basics. Of course, this isn’t legal advice, yet if you offer or are required to offer a warranty, honor it.
Suppliers and Warranty
Sometimes a product fails and it just isn’t your fault.
Say a purchased power supply fails. The customer calls you, the maker of the system using the power supply, to file a warranty claim. You repair or replace the product, incurring a warranty expense.
Now you have a failed power supply. Do you send that back to the vendor as a warranty claim in hopes of receiving a new power supply? In some cases you certainly can.
What matters here is how your arrange to deal with failures that occur due to supplied parts. Of course, you have a few options:
- Just incur the warranty costs
- Negotiate vendor pricing or terms to include warranty elements
- Negotiate a settlement with the vendor to cover all or part of the warranty expense
- Share warranty expenses with vendor, include details in the purchase agreement
In the aircraft industry, the jet engines (and other systems on the aircraft) retain servicing and warranty directly by the vendor. If a GE engine fails, rather than seeking repair under a warranty with Boeing, the airline would instead call GE directly. These arrangements have to be established prior to purchase and all parties must agree to the arrangement.
Your industry may have similar conventions related to who covers which warranty expenses.
Customer Support and Reverse Logistics
The paperwork, terms, and conditions are important, yet you also have to deal with actual products at some point.
- How will return products?
- Do you pay for shipping or do you require the customer to do so?
- Where will you receive and store returned units?
- Does a customer need a return material authorization, which is basically permission to return the product?
Customer support may include your employee or representative traveling to the customer location to diagnose, repair, or collect the product. Or, to install the replacement. Your support team may only work via phone to assist with diagnosing or repairing a product. Support may include detailed online troubleshooting steps, or not.
In short, there are many elements that require decisions, planning, and smooth operation. Warranty management starts before designing the product and may require attention long after the last product ships.In many
In many organizations, the management of warranty resides disjointed across the organization. In some, there is a warranty management team overseeing the overall program.How does your organization deal with
How does your organization deal with warranty? Are you involved as a reliability professional within the warranty program? If so, how so?
Bio:
Fred Schenkelberg is an experienced reliability engineering and management consultant with his firm FMS Reliability. His passion is working with teams to create cost-effective reliability programs that solve problems, create durable and reliable products, increase customer satisfaction, and reduce warranty costs. If you enjoyed this articles consider subscribing to the ongoing series at Accendo Reliability.